<PAGE>   1

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
   SECURITIES EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED NOVEMBER 30, 2000

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
   SECURITIES EXCHANGE ACT OF 1934

        FOR THE TRANSITION PERIOD FROM                TO

                         COMMISSION FILE NUMBER 0-27046

                                 TRAFFIX, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                            <C>
                  DELAWARE                                      22-3322277
       (STATE OR OTHER JURISDICTION OF                       (I.R.S. EMPLOYER
       INCORPORATION OR ORGANIZATION)                       IDENTIFICATION NO.)

             ONE BLUE HILL PLAZA                                   10965
            PEARL RIVER, NEW YORK                               (ZIP CODE)
  (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (845) 620-1212

<TABLE>
<CAPTION>
                                      TITLE OF CLASS   EXCHANGE ON WHICH REGISTERED
                                      --------------   ----------------------------
<S>                                  <C>               <C>
SECURITIES REGISTERED PURSUANT       COMMON STOCK         NASDAQ NATIONAL MARKET
  TO SECTION 12(b) OF THE ACT:       $.001 PAR VALUE
SECURITIES REGISTERED PURSUANT       COMMON STOCK
  TO SECTION 12(g) OF THE ACT:       $.001 PAR VALUE
</TABLE>

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (sec.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.  [ ]

                            ------------------------

     The number of shares outstanding of the Registrant's common stock is
15,716,398 (as of 2/23/01). The aggregate market value of the voting stock held
by nonaffiliates of the Registrant was approximately $26,840,354 (as of 2/23/01,
based upon a closing price of the Company's Common Stock on the Nasdaq National
Market on such date of $2.25.

                      DOCUMENTS INCORPORATED BY REFERENCE

     None.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2

                                 TRAFFIX, INC.

                      INDEX TO ANNUAL REPORT ON FORM 10-K
               FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
                  FOR THE FISCAL YEAR ENDED NOVEMBER 30, 2000

                               ITEMS IN FORM 10-K

<TABLE>
<CAPTION>
                                                                         PAGE
                                                                         ----
<S>        <C>                                                           <C>
PART I
  Item 1.  Business....................................................    2
  Item 2.  Properties..................................................    5
  Item 3.  Legal Proceedings...........................................    6
  Item 4.  Submission of Matters to a Vote of Security Holders.........  N/A
PART II
  Item 5.  Market for the Registrant's Common Equity and Related
           Stockholder Matters.........................................    7
  Item 6.  Selected Financial Data.....................................    8
  Item 7.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations...................................    8
  Item
     7A.   Quantitative and Qualitative Disclosures About Market
           Risk........................................................  N/A
  Item 8.  Financial Statements and Supplementary Data.................   25
  Item 9.  Changes in and Disagreements with Accountants on Accounting
           and Financial Disclosure....................................  N/A
PART III
  Item
     10.   Directors and Executive Officers of the Registrant..........   26
  Item
     11.   Executive Compensation......................................   29
  Item
     12.   Security Ownership of Certain Beneficial Owners and
           Management..................................................   31
  Item
     13.   Certain Relationships and Related Transactions..............   32
PART IV
  Item
     14.   Exhibits, Financial Statement Schedules and Reports on Form
           8-K.........................................................   33
SIGNATURES.............................................................   35
</TABLE>

                                        1
<PAGE>   3

                          FORWARD LOOKING INFORMATION
                              MAY PROVE INACCURATE

     This Annual Report on Form 10-K contains certain forward-looking statements
and information relating to the Company that are based on the beliefs of
Management, as well as assumptions made by and information currently available
to the Company. When used in this document, the words "anticipate," "believe,"
"estimate," and "expect" and similar expressions, as they relate to the Company,
are intended to identify forward-looking statements. Such statements reflect the
current views of the Company with respect to future events and are subject to
certain risks, uncertainties and assumptions, including those described in this
Annual Report on Form 10-K. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those described herein as anticipated, believed,
estimated or expected. The Company does not intend to update these
forward-looking statements.

ITEM 1.  BUSINESS

  OVERVIEW

     During the fiscal year ended November 30, 2000 ("Fiscal 2000"), Traffix,
Inc., formerly known as Quintel Communications, Inc. (the "Company"),
implemented its strategy of migrating and expanding its direct marketing
activities to the Internet. This included the launching of the website,
www.GroupLotto.com, which was listed during Fiscal 2000 as being one of the 50
most visited websites on the Internet, and the increase in its E-commerce
segment revenue from $7,634 during the fiscal year ended November 30, 1999 to
$9,980,283 during Fiscal 2000. The Company also continued to generate residual
revenue during Fiscal 2000 from its two historical income sources: Off-line
Customer Acquisitions and LEC Billed products and services.

     Historically, the Company had been engaged primarily in the direct
marketing of various telecommunications products and services. Prior to 1999,
the Company offered telephone entertainment services and enhanced telephone
services. It has also provided customer acquisition products and services to
long distance and wireless carriers. The Company utilized conventional off-line
marketing channels including television, telemarketing, direct mail and print
advertising. Its revenues were generated primarily through fees paid for
customer acquisitions and ongoing commissions earned under revenue sharing
arrangements with carriers.

     During the fiscal year ended November 30, 1999, the Company began the
process of migrating and expanding its direct marketing business activities to
the Internet. Its database marketing strategy remained the same but the
recipients changed from only postal addresses and telephone numbers to primarily
Internet e-mail addresses.

     One of the Company's first initiatives in implementing its on-line
marketing strategy was the December 1999 launch of the free lottery website,
www.GroupLotto.com, by a majority owned subsidiary of the Company, where a
registered player has a chance to win prizes of up to $10 million. In exchange
for playing the lottery, the player agrees to receive the Company's marketing
promotions. The lottery is insured and monitored by independent parties. Through
the GroupLotto website, the Company has collected e-mail and postal addresses
from consumers who have given permission (opted-in) to receive promotional
e-mail messages from the Company and third party promotional affiliates.

     Today, Traffix, Inc. is a database marketing and management company that
utilizes the GroupLotto website and its databases, which contain in excess of 10
million permission based, on-line consumers, and in excess of 49 million
off-line postal addresses, to generate revenue form direct marketing related
activities. The Company changed its name from Quintel Communications, Inc. to
Traffix, Inc., effective October 2, 2000, to better reflect the Company's
business of generating and directing consumer traffic for businesses, both
on-line and off-line.

     The Company generates revenue from three main sources. First, it generates
revenue when consumers register for and play the free on-line lottery at the
GroupLotto website. The Company is paid by its advertiser clients when players
elect to view the advertisements for, or otherwise enroll with, such
advertisers. Second, the Company has and continues to accumulate a large list of
consumer data, such as e-mail addresses, postal

                                        2
<PAGE>   4

addresses and telephone numbers, from individuals who have granted the Company
permission to market to them on-line. The Company then sends offers and
promotions to these individuals on behalf of its marketing clients. The Company
also sends certain of these offers and promotions to the databases of third
party marketing affiliates on a revenue share or fixed price basis. The Company
gets paid for sales or leads generated for these offers (cost-per-acquisition or
"cpa"), and also on a traditional cost-per-thousand ("cpm") of e-mails sent
basis. Third, the Company rents (for one time usage) its databases, and sells
copies of specific segments of its databases, to third parties for direct
marketing on-line, via telemarketing or through regular mail. These activities
represent the bulk of the Company's revenue generating activities from
operations as of the date hereof.

  E-COMMERCE SEGMENT

     During Fiscal 2000, the Company generated 38.2% of its revenues from its
E-commerce based activities. During the fiscal year ended November 30, 1999
("Fiscal 1999"), the Company had E-commerce segment revenue of $7,634 which
increased during Fiscal 2000 to $9,980,283. The Company believes this increase
was primarily the result of the launch of the free on-line lottery website,
www.Grouplotto.com, by a majority owned subsidiary of the Company.

     Players of the free lottery game can win a variety of prizes, including up
to $10 million. The lottery is insured by independent third parties so that the
Company does not have to pay for the top prizes from its own cash resources. The
insurer charges the Company a premium per player. In less than one year, this
site had become one of the 50 most visited websites on the Internet. The Company
believes this has allowed it to expand its proprietary and affiliate database to
over 10 million permission-based, on-line consumers. The Company uses this
extensive database and the website to generate revenues in several ways.

     - The delivery of "on-line traffic" to corporate advertisers' and marketing
       partners' websites ("click through" revenue);

     - The delivery of qualified registrants to corporate advertisers and
       marketing partners;

     - The sale of products and services on behalf of third parties through
       targeted, permission-based, opt-in e-mail marketing messages to the
       Company's on-line database, and to the databases of the Company's
       marketing affiliates; and

     - The sale of a copy of, or rental of, all or portions of the Company's
       extensive consumer database to third-party marketers.

  OFF-LINE CUSTOMER ACQUISITION SEGMENT

     In addition to the Company's database of over 10 million on-line consumers
(which includes certain "off-line" information such as home addresses and
telephone numbers), the Company also has an off-line database of over 49 million
postal addresses and telephone numbers from which the Company seeks to generate
revenue, principally through marketing of products and services on behalf of
third-party affiliates and through the sale or rental of certain extracted
consumer information to third-party marketers.

     During Fiscal 2000, the Company generated its Off-Line Customer Acquisition
revenue exclusively from long distance customer acquisition agreements with two
long distance providers, Qwest Communications and Talk.com.

     The Company provided marketing services to the long distance carrier LCI
International Telecom Corp., d/b/a Qwest Communications Services ("Qwest"),
primarily through outbound telemarketing and broadcast media, directed at the
acquisition of residential long distance customers for Qwest. In addition to
commissions paid to the Company for its successful customer acquisitions on
behalf of Qwest, the Company also received a portion of Qwest's net revenues
earned from such acquired customers' residential long distance usage. This
marketing arrangement with Qwest was terminated in Fiscal 2000, and the Company
does not expect to receive any further revenue from Qwest.

                                        3
<PAGE>   5

     The Company entered into a series of agreements with Talk.com Holding Corp.
("Talk") during Fiscal 2000, pursuant to which the Company provided marketing
services to Talk directed at the acquisition of residential long distance
customers for Talk. Such agreements obligated Talk to pay the Company fees for
its successful customer acquisitions on behalf of Talk. In October 2000, Talk
terminated its agreements with the Company and, accordingly, the Company no
longer realizes any continuing revenues therefrom. The Company has commenced
legal proceedings to contest what it believes to be Talk's wrongful termination
of its agreements with the Company. See "Legal Proceedings."

     For the fiscal years ended November 30, 2000, 1999 and 1998, the income
generated under the Off-line Customer Acquisition Segment collectively accounted
for approximately 34.3%, 71.6% and 32%, respectively, of the Company's net
revenues. The Company presently has no material Off-line Customer Acquisition
agreements in effect.

  LEC BILLED PRODUCTS AND SERVICES SEGMENT

     Enhanced Telephone Services

     During Fiscal 2000, the Company continued to service the subscribers of its
various enhanced telephone services ("enhanced services"), principally
voice-mail services. The Company currently does not market these services, but
continues to bill a decreasing residual membership base of approximately 10,800
customers, with the average bill approximating $11.50 per month. For the fiscal
years ended November 30, 2000, 1999 and 1998, these services collectively
accounted for approximately 14%, 18% and 24%, respectively, of the Company's net
revenues. The Company expects a decrease in enhanced services revenues in future
fiscal periods and a corresponding respective decrease to its percentage of
total revenues as the residual customer base continues to decrease.

     Access Resource Service Agreements

     In June 1999, the Company entered into a series of agreements
(collectively, the "Transaction Agreements") pursuant to which the Company
ceased offering its telephone entertainment services. Included in the
Transaction Agreements is the Agreement Regarding 900 Pay-Per-Call Psychic
Services (the "900 Agreement"), dated as of May 26, 1999, by and between the
Company and Access Resource Services, Inc. ("ARS"), pursuant to which the
Company agreed to refrain until January 17, 2001 from conducting, marketing,
advertising or promoting certain "stand alone" 900 Pay-Per-Call Psychic Services
described in the 900 Agreement (the "900 Psychic Services") directly or
indirectly through any affiliate. In addition, the Company agreed to cease the
conduct of the media buying operation which it conducted under the name "Quintel
Media" and ARS agreed to assume responsibility for the "Quintel Media" employees
and for the lease of the premises used by "Quintel Media" in Fort Lauderdale,
Florida, and to acquire the computer equipment and other furniture, fixtures and
leasehold improvements used by "Quintel Media" at such premises. In
consideration for the Company's acceptance of the terms of the 900 Agreement,
ARS and any of its affiliates offering 900 Pay-Per-Call Psychic Services and/or
membership club services, agreed to pay to the Company certain royalty fees
relative to such service offerings. ARS was required to pay such royalty fees
from and after the consummation of the transactions contemplated by the
Transaction Agreements, and until January 17, 2001. For the fiscal year ended
November 30, 2000, these royalties amounted to approximately $3,400,000, or 13%
of the Company's net revenues. Other than these royalty fees, the Company will
not be receiving any revenue in any future fiscal years from these telephone
entertainment services.

  COMPETITION

     The Company faces intense competition in the marketing of its products and
services. Many of the Company's competitors are well established, have
reputations for success in the development and marketing of services and have
significant financial, marketing, distribution, personnel and other resources.
These financial and other capabilities permit such companies to implement
extensive advertising and promotional campaigns, both generally and in response
to efforts by additional competitors to enter into new markets and introduce new
services.
                                        4
<PAGE>   6

     In addition, because the Internet and E-commerce have no substantial
existing barriers to entry, competition is expected to continue to increase
significantly in the Company's target markets. The Company expects that direct
marketing companies that have developed or are developing new on-line marketing
strategies, as well as direct marketing companies using traditional media
outlets and other companies that have the expertise to allow the development of
direct marketing capabilities, may attempt to provide the products or services
similar to those provided by the Company. It is also possible for a small
company to introduce a service or program with limited financial and other
resources through the use of the Internet or third-party agencies.

  INSURANCE

     The Company may be subject to substantial liability as a result of claims
made by consumers arising out of services provided by the Company's servicing
contractors and their employees. The Company maintains a general liability
insurance policy that is subject to a per occurrence limit of $1,000,000 with a
$2,000,000 aggregate limit and an umbrella policy covering an additional
$10,000,000 of liability. In addition, the Company has errors and omissions
insurance with a limit of $5,000,000. The Company also maintains Directors and
Officers liability insurance policies providing aggregate coverage of
$12,000,000 for legal costs and claims. Such insurance may not be sufficient to
cover all potential claims and additional insurance may not be available in the
future at reasonable costs.

  GOVERNMENT REGULATION

     The Pennsylvania Attorney General's Office has requested the Company to
enter into an Assurance of Voluntary Compliance Agreement to resolve allegations
concerning certain of the Company's sales practices. The Attorney General
alleges that the Company's Fly Free telemarketing program, as well as certain
pay-per call services, did not adequately disclose to the consumer the terms of
the offer being made. The Agreement would offer refunds to consumers submitting
written complaints within a 90 day window. The Agreement also provides for a
payment to the State in an amount yet to be determined. The Agreement is still
under negotiation.

  EMPLOYEES

     The Company currently employs 29 full-time employees, including four
executive officers, and two part-time employees. The Company believes that its
relations with its employees are satisfactory. None of the Company's employees
are represented by a union.

  SEGMENT INFORMATION

     Segment information is set forth in Note 13 to the Consolidated Financial
Statements referred to in the "Financial Statements and Supplementary Data"
section hereof and incorporated herein by reference.

  TRANSACTIONS WITH MAJOR CUSTOMERS

     Transactions with major customers and related economic dependence
information is set forth under the heading "Transactions with Major Customers"
in Note 1 to the Consolidated Financial Statements referred to in the "Financial
Statements and Supplementary Data" section hereof and incorporated herein by
reference.

ITEM 2.  PROPERTIES

     The Company leases approximately 15,000 square feet of space at One Blue
Hill Plaza, Pearl River, New York, all of which is currently used for the
Company's principal executive offices. The lease for such premises expires on
July 31, 2006. The current base rent is $21,875 per month, which amount
increases to $26,875 per month commencing on August 1, 2001, for the remainder
of the term of the lease.

                                        5
<PAGE>   7

ITEM 3.  LEGAL PROCEEDINGS

  Class Action Lawsuit

     On or about May 4, 1998, a complaint entitled "Joseph Chalverus, on behalf
of himself and all others similarly situated v. Quintel Entertainment, Inc.,
Jeffrey L. Schwartz and Daniel Harvey" was filed in the United States District
Court for the Southern District of New York; subsequently, a complaint entitled
"Richard M. Woodward, on behalf of himself and all others similarly situated v.
Quintel Entertainment, Inc., Jeffrey L. Schwartz and Daniel Harvey" was filed in
that same court, as was a complaint entitled "Dr. Michael Title, on behalf of
himself and all others similarly situated v. Jeffrey L. Schwartz, Jay Greenwald,
Claudia Newman Hirsch, Andrew Stollman, Mark Gutterman, Steven L. Feder, Michael
G. Miller, Daniel Harvey and Quintel Entertainment, Inc." (collectively, the
"Complaints"). In addition to the Company, the defendants named in the
Complaints are present and former officers and directors of the Company (the
"Individual Defendants"). The plaintiffs seek to bring the actions on behalf of
a purported class of all persons or entities who purchased shares of the
Company's Common Stock from July 15, 1997 through October 15, 1997 and who were
damaged thereby, with certain exclusions. The Complaints allege violations of
Sections 10(b) and 20 of the Securities Exchange Act of 1934, and allege that
the defendants made misrepresentations and omissions concerning the Company's
financial results, operations and future prospects, in particular, relating to
the Company's reserves for customer chargebacks and its business relationship
with AT&T. The Complaints allege that the alleged misrepresentations and
omissions caused the Company's Common Stock to trade at inflated prices, thereby
damaging plaintiffs and the members of the purported class. The amount of
damages sought by plaintiffs and the purported class has not been specified.

     On September 18, 1998, the District Court ordered that the three actions be
consolidated, appointed a group of lead plaintiffs in the consolidated actions,
approved the lead plaintiff's, selection of counsel for the purported class in
the consolidated actions, and directed the lead plaintiffs to file a
consolidated complaint. The consolidated and amended class action complaint
("Consolidated Complaint") which has been filed asserts the same legal claims
based on essentially the same factual allegations as did the Complaints. On
February 19, 1999, the Company and the Individual Defendants filed a motion to
dismiss the Consolidated Complaint. The District Court denied the motion to
dismiss. The Company and the Individual Defendants have answered the
Consolidated Complaint, denying all liability and raising various affirmative
defenses. By order dated September 27, 2000, the District Court certified a
class of plaintiffs in the consolidated actions, certified John R. Harper and
John P. Sankey as class representatives, and directed that notice of
certification be given to the class. The class is defined as persons or entities
who purchased or acquired shares of the Company's common stock on the open
market from July 15, 1997 through October 15, 1997, with certain exclusions.
Discovery has commenced. The Company believes that the allegations in the
Complaints are without merit, and intends to vigorously defend the consolidated
actions. The Company maintains Directors, Officers and Corporate Liability
Insurance, which the Company believes, should adequately cover damages, if any,
that may arise under the Complaints. No assurance can be given, however, that
the outcome of the consolidated actions will not have a materially adverse
impact upon the results of operations and financial condition of the Company.
See "Forward Looking Information May Prove Inaccurate".

  Talk.com

     On or about October 25, 2000, the Company instituted proceedings before the
American Arbitration Association against Talk.com Holding Corp. ("Talk") (Case
No. 13Y 180 01000 00), seeking money damages to be determined during the
proceedings, but believed to amount to at least $7 million, and other relief.
The relief sought arises from Talk's October 2000 termination of a series of
agreements entered into between the Company and Talk between April and
September, 2000 (the "Talk Agreements"), pursuant to which the Company provided
marketing services to Talk directed at the acquisition of residential long
distance customers for Talk. The Talk Agreements obligated Talk to pay the
Company fees for successful customer acquisitions on Talk's behalf. On November
21, 2000, Talk filed an Answering Statement and Counterclaim, whereby Talk (i)
denied the Company was entitled to the relief sought by virtue of what Talk
claimed was its rightful termination of the Talk Agreements; (ii) sought an
order that it rightfully terminated the Talk Agreements and that it is not
obligated to pay any further fees or other monetary damages to the Company;

                                        6
<PAGE>   8

(iii) sought damages in an undetermined amount for expenses and losses Talk
alleges to have incurred and alleges will incur in the future as a result of
what it claims were the Company's breaches of the Talk Agreements; and (iv)
sought an order providing that the Company indemnify Talk for claims arising out
of what Talk alleges are the Company's breaches of the Talk Agreements.
Discovery has commenced and hearings have been scheduled for May and June, 2001.

                                    PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS

  Market Information.

     Since October 2, 2000, the date upon which the Company changed its name
from Quintel Communications, Inc. to Traffix, Inc., the Company's Common Stock
has traded on the Nasdaq National Market System under the symbol "TRFX". Prior
thereto, such Common Stock traded under the symbol "QTEL". The following table
sets forth the high and low sales prices of the Common Stock as reported by
NASDAQ for each full quarterly period within the two most recent fiscal years.

<TABLE>
<CAPTION>
                                                                HIGH        LOW
                                                              --------    --------
<S>                                                           <C>         <C>
Fiscal Year Ended November 30, 2000
  First Quarter.............................................  $12.00      $      4.1875
  Second Quarter............................................    8.9375           2.00
  Third Quarter.............................................    4.5625           2.2812
  Fourth Quarter............................................    6.25             2.00

Fiscal Year Ended November 30, 1999
  First Quarter.............................................    2.875            1.0625
  Second Quarter............................................    2.75             0.78125
  Third Quarter.............................................    1.875            1.1875
  Fourth Quarter............................................    8.625            1.50
</TABLE>

  Security Holders.

     To the best knowledge of the Company, at February 23, 2001, there were 48
record holders of the Company's Common Stock. The Company believes there are
numerous beneficial owners of the Company's Common Stock whose shares are held
in "street name."

  Dividends.

     Except for S corporation distributions made to the Company's stockholders
prior to December 5, 1995 (the effective date of the initial public offering of
the Company's Common Stock), the Company has not paid, and has no current plans
to pay, dividends on its Common Stock. The Company currently intends to retain
all earnings for use in its business.

                                        7
<PAGE>   9

ITEM 6.  SELECTED FINANCIAL DATA

     The following table presents selected historical financial data of the
Company for each of the years in the five year period ended November 30, 2000.
The financial data set forth should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements of the Company.

STATEMENT OF OPERATIONS DATA:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED NOVEMBER 30,
                                          ---------------------------------------------------------------------
                                             2000          1999           1998           1997          1996
                                          -----------   -----------   ------------   ------------   -----------
<S>                                       <C>           <C>           <C>            <C>            <C>
Net revenue.............................  $26,093,960   $42,839,840   $ 94,690,251   $191,374,936   $86,666,768
Costs of sales..........................    9,470,275    26,952,097     80,037,115    149,821,363    64,661,256
Gross profit............................   16,623,685    15,887,743     14,653,136     41,553,573    22,005,512
Selling, general and administrative
  expenses..............................   11,149,392    10,881,156     34,049,435     18,880,769    10,159,226
                                          -----------   -----------   ------------   ------------   -----------
Income (loss) from operations...........    5,474,293     5,006,587    (19,396,299)    22,672,804    11,846,286
Interest expense........................     (286,655)      (70,701)      (186,218)       (80,763)     (473,289)
Other income, net.......................    3,442,938     1,446,494      2,212,435      1,841,356       760,413
Equity in earnings of joint venture.....      (11,952)                                                4,939,653
                                          -----------   -----------   ------------   ------------   -----------
Income (loss) before provision for
  income taxes (benefit)................    8,618,624     6,382,380    (17,370,082)    24,433,397    17,073,063
Provision for income taxes..............    3,471,754     2,458,520       (417,464)    10,069,616     4,898,633
                                          -----------   -----------   ------------   ------------   -----------
Net income (loss).......................  $ 5,146,870   $ 3,923,860   $(16,952,618)  $ 14,363,781   $12,174,430
                                          ===========   ===========   ============   ============   ===========
Basic net income (loss) per share.......  $       .35   $       .26   $      (1.00)  $        .77   $       .76
                                          ===========   ===========   ============   ============   ===========
Diluted net income (loss) per share.....  $       .33   $       .26   $      (1.00)  $        .76   $       .76
                                          ===========   ===========   ============   ============   ===========
Common Shares outstanding
  Basic.................................   14,792,734    15,119,610     17,034,531     18,560,064    16,145,445
  Diluted...............................   15,494,663    15,241,662     17,034,531     18,878,790    16,124,743
</TABLE>

BALANCE SHEET DATA:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED NOVEMBER 30,
                                          ---------------------------------------------------------------------
                                             2000          1999           1998           1997          1996
                                          -----------   -----------   ------------   ------------   -----------
<S>                                       <C>           <C>           <C>            <C>            <C>
Working capital.........................  $40,178,773   $36,789,213   $ 34,138,388   $ 43,674,688   $25,423,442
Total assets............................   52,804,059    57,277,279     64,413,144    115,998,776    79,029,547
Total liabilities.......................   11,475,499    17,391,001     27,731,000     52,292,478    31,294,614
Stockholders' equity....................   41,328,560    39,886,278     36,682,144     63,706,297    47,734,933
</TABLE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

     During the fiscal year ended November 30, 2000 ("Fiscal 2000"), Traffix,
Inc., formerly known as Quintel Communications, Inc. (the "Company"),
implemented its strategy of migrating and expanding its direct marketing
activities to the Internet. This included the launching of the website,
www.GroupLotto.com, which was listed during Fiscal 2000 as being one of the 50
most visited websites on the Internet, and the increase in its E-commerce
segment revenue from $7,634 during the fiscal year ended November 30, 1999 to
$9,980,283 during Fiscal 2000. The Company also continued to generate residual
revenue during Fiscal 2000 from its two historical income sources: Off-line
Customer Acquisitions and LEC Billed products and services.

     Historically, the Company had been engaged primarily in the direct
marketing of various telecommunications products and services. Prior to 1999,
the Company offered telephone entertainment services and enhanced telephone
services. It has also provided customer acquisition products and services to
long distance

                                        8
<PAGE>   10

and wireless carriers. The Company utilized conventional off-line marketing
channels including television, telemarketing, direct mail and print advertising.
Its revenues were generated primarily through fees paid for customer
acquisitions and ongoing commissions earned under revenue sharing arrangements
with carriers.

     During the fiscal year ended November 30, 1999, the Company began the
process of migrating and expanding its direct marketing business activities to
the Internet. Its database marketing strategy remained the same but the
recipients changed from only postal addresses and telephone numbers to primarily
Internet e-mail addresses.

     One of the Company's first initiatives in implementing its on-line
marketing strategy was the December 1999 launch of the free lottery website,
www.GroupLotto.com, by a majority owned subsidiary of the Company, where a
registered player has a chance to win prizes of up to $10 million. In exchange
for playing the lottery, the player agrees to receive the Company's marketing
promotions. The lottery is insured and monitored by independent parties. Through
the GroupLotto website, the Company has collected e-mail and postal addresses
from consumers who have given permission (opted-in) to receive promotional
e-mail messages from the Company and third party promotional affiliates.

     Today, Traffix, Inc. is a database marketing and management company that
utilizes the GroupLotto website and its databases, which contain in excess of 10
million permission based, on-line consumers, and in excess of 49 million
off-line postal addresses, to generate revenue form direct marketing related
activities. The Company changed its name from Quintel Communications, Inc. to
Traffix, Inc., effective October 2, 2000, to better reflect the Company's
business of generating and directing consumer traffic for businesses, both
on-line and off-line.

     The Company generates revenue from three main sources. First, it generates
revenue when consumers register for and play the free on-line lottery at the
GroupLotto website. The Company is paid by its advertiser clients when players
elect to view the advertisements for, or otherwise enroll with, such
advertisers. Second, the Company has and continues to accumulate a large list of
consumer data, such as e-mail addresses, postal addresses and telephone numbers,
from individuals who have granted the Company permission to market to them
on-line. The Company then sends offers and promotions to these individuals on
behalf of its marketing clients. The Company also sends certain of these offers
and promotions to the databases of third party marketing affiliates on a revenue
share or fixed price basis. The Company gets paid for sales or leads generated
for these offers (cost-per-acquisition or "cpa"), and also on a traditional
cost-per-thousand ("cpm") of e-mails sent basis. Third, the Company rents (for
one time usage) its databases, and sells copies of specific segments of its
databases, to third parties for direct marketing on-line, via telemarketing or
through regular mail. These activities represent the bulk of the Company's
revenue generating activities from operations as of the date hereof.

SEGMENT INFORMATION

     The Company's reportable operating segments are aligned into three
fundamental areas: (1) Internet Commerce billed directly to the Company's
marketing partners and corporate customers, as well as consumers (E-commerce),
(2) off-line customer acquisition services billed directly to long distance
carriers, wireless carriers and other service providing businesses (Off-line
Customer Acquisition) and (3) Products and Services billed to consumers by Local
Exchange Carriers (LEC Billed products and services). The balance of the
Company's operations are immaterial, both individually and in the aggregate, and
are included as part of Corporate and other. This business segment delineation
is consistent with the Company's management and financial reporting structure
based on products and services. The Company evaluates performance based on many
factors, with each segment's (a) net revenues, (b) cost of sales and (c)
selling, general and administrative expenses disclosed below. The organization
shares a common workforce and office headquarters, which precludes an itemized
allocation of all overhead components. Overhead items that are specifically
identifiable to a particular segment are applied to such segment and all other
overhead costs are included in Corporate and other.

     The Company's segments operate exclusively in the United States with an
immaterial portion of revenue earned in Canada during the fiscal years ended
November 30, 1999 and 1998.
                                        9
<PAGE>   11

  E-COMMERCE SEGMENT

     During Fiscal 2000, the Company generated 38.2% of its revenues from its
E-commerce based activities. During the fiscal year ended November 30, 1999
("Fiscal 1999"), the Company had E-commerce segment revenue of $7,634 which
increased during Fiscal 2000 to $9,980,283. The Company believes this increase
was primarily the result of the launch of the free on-line lottery website,
www.Grouplotto.com, by a majority owned subsidiary of the Company.

     Players of the free lottery game can win a variety of prizes, including up
to $10 million. The lottery is insured by independent third parties so that the
Company does not have to pay for the top prizes from its own cash resources. The
insurer charges the Company a premium per player. In less than one year, this
site had become one of the 50 most visited websites on the Internet. The Company
believes this has allowed it to expand its proprietary and affiliate database to
over 10 million permission-based, on-line consumers. The Company uses this
extensive database and the website to generate revenues in several ways.

     - The delivery of "on-line traffic" to corporate advertisers' and marketing
       partners' websites ("click through" revenue);

     - The delivery of qualified registrants to corporate advertisers and
       marketing partners;

     - The sale of products and services on behalf of third parties through
       targeted, permission-based, opt-in e-mail marketing messages to the
       Company's on-line database, and to the databases of the Company's
       marketing affiliates; and

     - The sale of a copy of, or rental of, all or portions of the Company's
       extensive consumer database to third-party marketers.

  OFF-LINE CUSTOMER ACQUISITION SEGMENT

     In addition to the Company's database of over 10 million on-line consumers
(which includes certain "off-line" information such as home addresses and
telephone numbers), the Company also has an off-line database of over 49 million
postal addresses and telephone numbers from which the Company seeks to generate
revenue, principally through marketing of products and services on behalf of
third-party affiliates and through the sale or rental of certain extracted
consumer information to third-party marketers.

     During Fiscal 2000, the Company generated its Off-Line Customer Acquisition
revenue exclusively from long distance customer acquisition agreements with two
long distance providers, Qwest Communications and Talk.com.

     The Company provided marketing services to the long distance carrier LCI
International Telecom Corp., d/b/a Qwest Communications Services ("Qwest"),
primarily through outbound telemarketing and broadcast media, directed at the
acquisition of residential long distance customers for Qwest. In addition to
commissions paid to the Company for its successful customer acquisitions on
behalf of Qwest, the Company also received a portion of Qwest's net revenues
earned from such acquired customers' residential long distance usage. This
marketing arrangement with Qwest was terminated in Fiscal 2000, and the Company
does not expect to receive any further revenue from Qwest.

     The Company entered into a series of agreements with Talk.com Holding Corp.
("Talk") during Fiscal 2000, pursuant to which the Company provided marketing
services to Talk directed at the acquisition of residential long distance
customers for Talk. Such agreements obligated Talk to pay the Company fees for
its successful customer acquisitions on behalf of Talk. In October 2000, Talk
terminated its agreements with the Company and, accordingly, the Company no
longer realizes any continuing revenues therefrom. The Company has commenced
legal proceedings to contest what it believes to be Talk's wrongful termination
of its agreements with the Company. See "Legal Proceedings."

     For the fiscal years ended November 30, 2000, 1999 and 1998, the income
generated under the Off-line Customer Acquisition Segment collectively accounted
for approximately 34.3%, 71.6% and 32%, respectively,

                                        10
<PAGE>   12

of the Company's net revenues. The Company presently has no material Off-line
Customer Acquisition agreements in effect.

  LEC BILLED PRODUCTS AND SERVICES SEGMENT

     Enhanced Telephone Services

     During Fiscal 2000, the Company continued to service the subscribers of its
various enhanced telephone services ("enhanced services"), principally
voice-mail services. The Company currently does not market these services, but
continues to bill a decreasing residual membership base of approximately 10,800
customers, with the average bill approximating $11.50 per month. For the fiscal
years ended November 30, 2000, 1999 and 1998, these services collectively
accounted for approximately 14%, 18% and 24%, respectively, of the Company's net
revenues. The Company expects a decrease in enhanced services revenues in future
fiscal periods and a corresponding respective decrease to its percentage of
total revenues as the residual customer base continues to decrease.

     Access Resource Service Agreements

     In June 1999, the Company entered into a series of agreements
(collectively, the "Transaction Agreements") pursuant to which the Company
ceased offering its telephone entertainment services. Included in the
Transaction Agreements is the Agreement Regarding 900 Pay-Per-Call Psychic
Services (the "900 Agreement"), dated as of May 26, 1999, by and between the
Company and Access Resource Services, Inc. ("ARS"), pursuant to which the
Company agreed to refrain until January 17, 2001 from conducting, marketing,
advertising or promoting certain "stand alone" 900 Pay-Per-Call Psychic Services
described in the 900 Agreement (the "900 Psychic Services") directly or
indirectly through any affiliate. In addition, the Company agreed to cease the
conduct of the media buying operation which it conducted under the name "Quintel
Media" and ARS agreed to assume responsibility for the "Quintel Media" employees
and for the lease of the premises used by "Quintel Media" in Fort Lauderdale,
Florida, and to acquire the computer equipment and other furniture, fixtures and
leasehold improvements used by "Quintel Media" at such premises. In
consideration for the Company's acceptance of the terms of the 900 Agreement,
ARS and any of its affiliates offering 900 Pay-Per-Call Psychic Services and/or
membership club services, agreed to pay to the Company certain royalty fees
relative to such service offerings. ARS was required to pay such royalty fees
from and after the consummation of the transactions contemplated by the
Transaction Agreements, and until January 17, 2001. For the fiscal year ended
November 30, 2000, these royalties amounted to approximately $3,400,000, or 13%
of the Company's net revenues. Other than these royalty fees, the Company will
not be receiving any revenue in any future fiscal years from these telephone
entertainment services.

                                        11
<PAGE>   13

RESULTS OF OPERATIONS

     The Company's net revenues, on a segmental basis, and with disclosure of
the individual segment components, for each of the three years in the period
ended November 30, 2000 are detailed in the following tables:

               SEGMENT DATA -- NET REVENUES, BY SEGMENT COMPONENT

<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,                          2000           1999           1998
-----------------------                       -----------    -----------    -----------
<S>                                           <C>            <C>            <C>
E-COMMERCE COMPONENTS
Talk.com Long Distance customer
  acquisitions..............................  $ 4,913,703    $        --    $        --
Traffix e-mailings..........................      122,663             --             --
GroupLotto-co-registrations and games.......    4,307,878          7,634             --
GroupLotto-barter on e-mail database........      360,000             --             --
Traffix E-mail, Inc.........................      276,039             --             --
                                              -----------    -----------    -----------
TOTAL E-COMMERCE............................  $ 9,980,283    $     7,634    $        --
                                              -----------    -----------    -----------

OFF-LINE CUSTOMER ACQUISITION SERVICES
  COMPONENTS
Talk.com Long Distance customer
  acquisitions..............................  $ 4,146,987    $        --    $        --
Qwest Long distance customer acquisitions...      418,448     21,593,504     23,796,775
Qwest Long distance usage commissions.......    4,387,149      9,093,505        307,776
Conventional and Prepaid Wireless customer
  acquisitions..............................           --             --      6,259,545
Other customer acquisition services.........        6,190             --             --
                                              -----------    -----------    -----------
TOTAL OFF-LINE CUSTOMER ACQUISITION
  SERVICES..................................  $ 8,958,774    $30,687,009    $30,364,096
                                              -----------    -----------    -----------

LEC BILLED PRODUCTS AND SERVICES COMPONENTS
"900" Entertainment Service termination
  royalties.................................  $ 3,393,428    $ 2,769,169    $        --
"900" Entertainment Services................           --             --     24,505,994
Club 900 Products...........................       85,417      1,693,373     16,418,901
Enhanced Services, principally voice mail...    3,590,463      7,513,080     23,077,470
Telephone number lists rentals..............       65,523             --             --
                                              -----------    -----------    -----------
TOTAL LEC BILLED PRODUCTS AND SERVICES......  $ 7,134,831    $11,975,622    $64,002,365
                                              -----------    -----------    -----------

CORPORATE AND OTHER COMPONENTS
Miscellaneous products, list revenue and
  other.....................................  $    20,072    $   169,575    $   323,790
                                              -----------    -----------    -----------
          CONSOLIDATED TOTALS...............  $26,093,960    $42,839,840    $94,690,251
                                              ===========    ===========    ===========
</TABLE>

                                        12
<PAGE>   14

     The following table sets forth for the periods indicated the percentage of
net revenues represented by certain items reflected in the Company's statement
of operations:.

<TABLE>
<CAPTION>
                                                              YEAR ENDED NOVEMBER 30,
                                                              -----------------------
                                                              2000     1999     1998
                                                              -----    -----    -----
<S>                                                           <C>      <C>      <C>
Net Revenue.................................................  100.0%   100.0%   100.0%
                                                              -----    -----    -----
Cost of Sales...............................................   36.3     62.9     84.5
Gross Profit................................................   63.7     37.1     15.5
Selling, general and administrative expenses................   42.7     25.4     15.2
Special charges.............................................    0.0      0.0     20.8
  Interest Expense..........................................    1.1      0.2      0.2
  Other Income, (expense)...................................   13.1      3.4      2.3
Net Income (loss)...........................................   19.7      9.2    (17.9)
</TABLE>

     The following is a discussion of the financial condition and results of
operations of the Company for the years ended November 30, 2000, 1999 and 1998.
This discussion may contain forward looking-statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. This discussion should be read in conjunction with the
consolidated financial statements of the Company, the notes thereto and other
financial information included elsewhere in this report.

YEAR ENDED NOVEMBER 30, 2000 COMPARED TO YEAR ENDED NOVEMBER 30, 1999

     The Company's net revenues, on a segmental basis, with disclosure of the
components of the individual segments, for the years ended November 30, 2000 and
1999, are presented below:

               SEGMENT DATA -- NET REVENUES, BY SEGMENT COMPONENT

<TABLE>
<CAPTION>
                                                                                CHANGE-INC(DEC)   CHANGE-INC(DEC)
YEAR ENDED NOVEMBER 30,                                2000          1999             $$$               %%%
-----------------------                             -----------   -----------   ---------------   ---------------
<S>                                                 <C>           <C>           <C>               <C>
E-COMMERCE COMPONENTS
Talk.com Long Distance customer acquisitions......  $ 4,913,703   $        --    $  4,913,703          100%
Traffix e-mailings................................      122,663            --         122,663          100%
GroupLotto -- co-registrations and games..........    4,307,878         7,634       4,300,244          100%
GroupLotto -- barter on e-mail database...........      360,000            --         360,000          100%
Traffix E-mail, Inc. .............................      276,039            --         276,039          100%
                                                    -----------   -----------    ------------          ----
TOTAL E-COMMERCE..................................  $ 9,980,283   $     7,634       9,972,649          100%
                                                    -----------   -----------    ------------          ----
OFF-LINE CUSTOMER ACQUISITION SERVICES COMPONENTS
Talk.com Long Distance customer acquisitions......  $ 4,146,987   $        --    $  4,146,987          100%
Qwest Long distance customer acquisitions.........      418,448    21,593,504     (21,175,056)         (98%)
Qwest Long distance usage commissions.............    4,387,149     9,093,505      (4,706,356)         (52%)
Other customer acquisition services...............        6,190            --           6,190          100%
                                                    -----------   -----------    ------------          ----
        TOTAL OFF-LINE CUSTOMER ACQUISITION
          SERVICES................................  $ 8,958,774   $30,687,009     (21,728,235)         (71%)
                                                    -----------   -----------    ------------          ----
LEC BILLED PRODUCTS AND SERVICES COMPONENTS
"900" Entertainment Service termination
  royalties.......................................  $ 3,393,428   $ 2,769,169    $    624,259           23%
Club 900 Products.................................       85,417     1,693,373      (1,607,956)         (95%)
Enhanced Services, principally voice mail.........    3,590,463     7,513,080      (3,922,617)         (52%)
Telephone number lists rentals....................       65,523            --          65,523          100%
                                                    -----------   -----------    ------------          ----
TOTAL LEC BILLED PRODUCTS AND SERVICES............  $ 7,134,831   $11,975,622      (4,840,791)         (40%)
                                                    -----------   -----------    ------------          ----
CORPORATE AND OTHER COMPONENTS
Miscellaneous products, list revenue and other....  $    20,072   $   169,575        (149,503)         (88%)
                                                    -----------   -----------    ------------          ----
        CONSOLIDATED TOTALS.......................  $26,093,960   $42,839,840    $(16,745,880)         (39%)
                                                    ===========   ===========    ============          ====
</TABLE>

                                        13
<PAGE>   15

     Net Revenue for the year ended November 30, 2000 decreased $16,745,880, or
39%, when compared to the year ended November 30, 1999. The revenue increase in
the Company's E-commerce segment of approximately $10 million helped offset
decreases of approximately $21.7 and $4.8 million in the Off-line Customer
Acquisition services and LEC Billed products and services segments,
respectively.

     The majority of the approximate $10 million E-commerce segment net revenue
generated during the fiscal year ended November 30, 2000, when compared to the
$7,634 of net revenue generated during the fiscal year ended November 30, 1999,
is attributable to marketing sale agreements with marketing partners and
corporate customers. The provisions of each agreement determine the type and
timing of revenue to be recorded, which fall into four basic categories: (1)
registration revenue generated from the delivery of qualified registrants to
corporate customers and marketing partners, (2) "click" or "game" revenue for
the delivery of "on-line traffic" to the Company's corporate advertisers' and
marketing partners' websites (which, when combined with the aforementioned
registration revenue, approximated $4.3 million, or 43% of the segment's net
revenue during Fiscal 2000), (3) fees paid by corporate customers for the
delivery of customers obtained through the Company's on-line based marketing
programs (which approximated $4.9 million, or 49% of the segment's net revenue
during Fiscal 2000) and, (4) transmission of permission based opt-in e-mail
advertisements to the Company's on-line database population (which approximated
$759,000, or 8% of the segment's net revenue during Fiscal 2000).

     For a more detailed discussion of the decrease in Off-line Customer
Acquisition services segment revenues see "-- Transactions with Major
Customers".

     The decline in the LEC Billed products and services segment was primarily
due to the residual effects of the Company's termination of the active marketing
of such services in November 1998. See "-- Service Bureaus and Local Exchange
Carriers" and "-- Prior Year Transactions Impacting Current and Future Fiscal
Periods" for an expanded discussion of such decrease. Additionally, decreases in
net revenues from the LEC Billed products and services segment were partially
offset by adjustments to chargeback estimates from prior fiscal periods. Due to
the fact that a significant portion of these previously offered LEC segment
services have reached their contractual settlement phase, it was determined that
certain chargeback reserves were no longer necessary, and approximately $1.8
million was credited to income for the year ended November 30, 2000.

     The Company's cost of sales are comprised of (1) direct and indirect
marketing costs directly associated with the procurement and retention of
customers, including direct response advertising costs, marketing partner
profit-participation costs, promotional costs and premium fulfillment costs, and
(2) the related billing, collection and customer service costs. During the year
ended November 30, 1999, the Company's cost of revenues were offset by net
revenue generated from certain premium offerings made in conjunction with the
Company's marketing of other products and services. The Company terminated the
marketing of these products and service in conjunction with the Transaction
Agreements more fully described in "-- Prior Year Transactions Impacting Current
and Future Fiscal Periods". All such residual revenues from those premium
offerings are reflected in the Company's Other income (expense) section, as a
component of "Other non-operating income", and amounted to approximately $1
million for the year ended November 30, 2000.

     The Company's cost of sales for the years ended November 30, 2000 and 1999
are presented below:

                         SEGMENT DATA -- COST OF SALES

<TABLE>
<CAPTION>
                                              COST OF SALES
                                        -------------------------    CHANGE-INC(DEC)    CHANGE-INC(DEC)
YEAR ENDED NOVEMBER 30,                    2000          1999              $$$                %%%
-----------------------                 ----------    -----------    ---------------    ---------------
<S>                                     <C>           <C>            <C>                <C>
E-commerce............................  $6,025,010    $     2,084     $  6,022,926            100%
Off-line Customer Acquisition
  services............................   3,010,215     24,416,056      (21,405,841)           (88%)
LEC Billed products and services......     435,050      2,518,547       (2,083,497)           (83%)
Corporate and other...................          --         15,410          (15,410)          (100%)
                                        ----------    -----------     ------------           ----
         CONSOLIDATED TOTALS..........  $9,470,275    $26,952,097     $(17,481,822)           (65%)
                                        ==========    ===========     ============           ====
</TABLE>

                                        14
<PAGE>   16

                    CONSOLIDATED COST OF SALES, BY COMPONENT

<TABLE>
<CAPTION>
                                              COST OF SALES           CHANGE-INC      CHANGE-INC
                                        -------------------------        DEC             DEC
YEAR ENDED NOVEMBER 30,                    2000          1999            $$$             %%%
-----------------------                 ----------    -----------    ------------    ------------
<S>                                     <C>           <C>            <C>             <C>
Advertising, promotion and fulfillment
  costs...............................  $7,679,542    $29,207,076    $(21,527,534)        (74%)
Service Bureau fees, including
  customer service and psychic
  operators...........................   1,790,733      6,980,932      (5,190,199)        (74%)
"900" Pay-per-call Premium net
  revenue.............................          --     (9,235,911)      9,235,911        (100%)
                                        ----------    -----------    ------------        ----
          TOTAL.......................  $9,470,275    $26,952,097    $(17,481,822)        (65%)
                                        ----------    -----------    ------------        ----
</TABLE>

     The decrease in cost of sales is directly attributable to the Company's
significantly reduced marketing efforts and related expenditures for the year
ended November 30, 2000, when compared to the year ended November 30, 1999. The
primary factor contributing to this reduction was the termination of the
marketing of the residential long distance customer acquisition activities with
Qwest. This termination was effective November 30, 1999, and, therefore, the
year ended November 30, 2000 did not include the cost of revenues regarding this
arrangement. This agreement was active during the entire year ended November 30,
1999 and caused the Company to incur all of the attendant costs of revenue, such
as outbound telemarketing, direct mail, television broadcast media, fulfillment
costs and customer service. See "Transactions with Major Customers". The
advertising, promotion and fulfillment decreases associated with the Qwest
agreement termination were partially offset by increases in customer acquisition
costs in obtaining registered users for its websites and the costs associated
with acquiring long distance customers, both on-line and off-line, for the
Company's customer acquisition agreement with Talk.com. The Talk.com agreement,
initially entered into in May 2000, and then replaced by a long-term contract in
September 2000, was terminated by Talk.com on October 23, 2000 (see
"-- Transactions with Major Customers"), which termination the Company is
contesting in arbitration (see "Legal Proceedings"). The decrease in cost of
revenues is also attributable to the significant decrease in service bureaus
fees during the year ended November 30, 2000 of approximately $5.2 million, or
74%, when compared to the year ended November 30, 1999. The primary factor
contributing to this decrease in service bureau fees relates to the decrease in
the Company's LEC segment products and services billed during the year ended
November 30, 2000, when compared to the year ended November 30, 1999, with net
revenues generated from the offering of such products and services (subject to
service bureau fees) having decreased approximately 60%. The billing of these
LEC products and services generated (a) bill delivery costs, (b) post billing
and collection management costs and (c) data maintenance costs, with the
majority of those costs being invoiced as a percentage of the related gross
revenue billed. During the year ended November 30, 2000, the cost of revenue was
also reduced for adjustments made to prior period fulfillment liability
estimates. The adjustments reduced prior year estimates to amounts actually
redeemed. The total amount of these reductions to cost of sales approximated
$2,428,000.

     The Company's selling, general and administrative expenses ("SG&A") are
principally comprised of (a) compensation costs and related expenses for
executive, sales, finance, information systems and general administration
personnel, (b) professional fees, (c) insurance costs, (d) occupancy and other
equipment rental costs, (e) site development and modification costs related to
the Company's E-commerce segment, and (f) all other general and miscellaneous
corporate expense items.

                                        15
<PAGE>   17

     The Company's SG&A expenses for the years ended November 30, 2000 and 1999
are presented, on a segment distribution basis, below:

  Consolidated -- Selling, General and Administrative Expenses

<TABLE>
<CAPTION>
                                             SG&A               CHANGE-INC     CHANGE-INC
                                  --------------------------       (DEC)         (DEC)
YEAR ENDED NOVEMBER 30,              2000           1999            $$$           %%%
-----------------------           -----------    -----------    -----------    ----------
<S>                               <C>            <C>            <C>            <C>
E-commerce......................  $ 5,542,435    $   441,974    $ 5,100,461       100%
Off-line Customer Acquisition
  services......................    1,037,476      5,997,437     (4,959,961)      (83%)
LEC Billed products and
  services......................      851,537      1,259,547       (408,010)      (32%)
Corporate and other.............    3,717,944      3,182,198        535,746        17%
                                  -----------    -----------    -----------       ---
          CONSOLIDATED TOTALS...  $11,149,392    $10,881,156    $   268,236         3%
                                  -----------    -----------    -----------       ---
</TABLE>

     The increase in SG&A expense in the year ended November 30, 2000, compared
to the year ended November 30, 1999, is primarily attributable to the Company's
expansion of its operations into the Internet and on-line marketplace. During
the year ended November 30, 2000 the Company expended approximately $2.6 million
on website development, hosting, enhancements, maintenance, and consulting fees.
The Company also expended approximately $1.2 million on contingent prize based
insurance to cover the possibility of winners of its free on-line lottery
website. These increases were partially offset by reductions in personnel
utilized in maintaining the Company's legacy businesses. Such decreases were
principally recognized during the first six months of the fiscal year ended
November 30, 2000. The legacy business personnel cost reductions were partially
offset by increases in human resources and development costs associated with the
Company's E-commerce segment. Additional reductions in SG&A are attributable to
the terms of an agreement entered into by the Company in the third quarter of
the fiscal year ended November 30, 1999, pursuant to which the Company (i)
eliminated its media buying operation, which included a staff of approximately
twenty-one employees, (ii) was released from a continuing rent expense
obligation under an assignment of a lease for the office space occupied by such
media department, and (iii) disposed of all the media operation's property and
equipment. See "-- Prior Year Transactions Impacting Current and Future Fiscal
Periods."

                                        16
<PAGE>   18

     The Company's "Other income (expense)" for the years ended November 30,
2000 and 1999, are presented below:

                      CONSOLIDATED OTHER INCOME (EXPENSE)

<TABLE>
<CAPTION>
                                    OTHER INCOME (EXPENSE)      CHANGE-INC     CHANGE-INC
                                   -------------------------       (DEC)         (DEC)
YEAR ENDED NOVEMBER 30,               2000           1999           $$$           %%%
-----------------------            -----------    ----------    -----------    ----------
<S>                                <C>            <C>           <C>            <C>
Other income (expense):
Interest expense.................  $  (286,655)   $  (70,701)   $   215,954        305%
Interest income and dividends....    2,646,622     1,390,829      1,255,793         90%
Net gains (losses) on sale of
  marketable securities..........      863,384      (494,351)     1,357,735        275%
Long-lived asset impairment
  charges........................   (2,139,315)           --     (2,139,315)       100%
Loss on disposal of fixed
  assets.........................           --      (157,553)       157,553       (100%)
Gain on non-monetary cost basis
  exchange.......................      565,572            --        565,572        100%
Other non-operating income:
  Sale of telecommunication
     license assets..............      135,000            --        135,000        100%
  Residual revenues from
     terminated programs.........    1,021,401       555,394        466,007         84%
  Other miscellaneous,
     non-operating income........      198,322       152,175         46,147         30%
Minority interest................      140,000            --        140,000        100%
                                   -----------    ----------    -----------       ----
                                     3,144,331     1,375,793    $ 2,200,446        160%
                                   -----------    ----------    -----------       ----
</TABLE>

     The Company recorded Long-lived asset impairment charges of $2.1 million,
and recognized a non-monetary gain of $565,572 on an asset exchange, during the
year ended November 30, 2000. See Note 5 to the Consolidated Financial
Statements.

     The Company's effective income tax rate was 40.3% and 38.5% for the years
ended November 30, 2000 and 1999, respectively, and is a result of the
combination of federal income taxes at statutory rates and state taxes.

YEAR ENDED NOVEMBER 30, 1999 COMPARED TO YEAR ENDED NOVEMBER 30, 1998

     The Company's net revenues for its segmental operations for the year ended
November 30, 1999 and 1998 are presented below:

                           NET REVENUES -- BY SEGMENT

<TABLE>
<CAPTION>
                                  NET REVENUE
                           --------------------------    CHANGE-INC(DEC)    CHANGE-INC(DEC)
YEAR ENDED NOVEMBER 30,       1999           1998              $$$                %%%
-----------------------    -----------    -----------    ---------------    ---------------
<S>                        <C>            <C>            <C>                <C>
LEC Billed products and
  services...............  $11,975,622    $64,002,365     $(52,026,743)           (81%)
Customer Acquisition
  services...............   30,687,009     30,364,096          322,913              1%
E-commerce...............        7,634             --            7,634            100%
Corporate and other......      169,575        323,790         (154,215)           (48%)
                           -----------    -----------     ------------            ---
          TOTAL..........  $42,839,840    $94,690,251     $(51,850,411)           (55%)
                           ===========    ===========     ============            ===
</TABLE>

                                        17
<PAGE>   19

     Net Revenue for the year ended November 30, 1999 decreased $51,850,411, or
55%, when compared to the year ended November 30, 1998. The significant portion
of the decrease in net revenues occurred in the Company's LEC Billed products
and services segment. The individual components of such decrease are described
below. The decrease was partially attributable to reductions in the Company's
enhanced service revenues of approximately $15.6 million, or a 67% reduction
when compared with the prior year. This decline in enhanced service net revenue
was the direct result of the Company discontinuing the active marketing of such
services in response to the November 1998 billing service agreement termination
by Billing Information Concepts, Inc. ("BIC"), the Company's primary enhanced
service billing agent at that time. The Company continued to bill and provide
enhanced services to the member base that was in place at the time of the
billing cessation (approximately 500,000 subscribers). During the year ended
November 30, 1999, the Company recognized an approximate 93% reduction in such
residual member base. As a result of the termination of enhanced service
marketing and the above referenced attrition rate, management believes that the
enhanced service portion of the Company's net revenues will continue to decline,
and be an immaterial component thereof, in the fiscal year ending November 30,
2000. (See "Service Bureau and Local Exchange Carriers").

     The decrease in the LEC Billed product and service segment net revenue was
due also, in part, to reductions in the Company's Club 900 product net revenues
of approximately $14.7 million, or 90%, when compared with the year ended
November 30, 1998. The significant cause of such reduction in Club 900 net
revenues relates to an agreement entered into between the Company and Access
Resources Services, Inc. ("ARS"), which eliminated the Company's active
participation in the "900" pay per call business (the "ARS Agreement"). Such
agreement is more fully described in "Consummation of Transactions Impacting
Current and Future Fiscal Periods". Additionally, the Company's intentional
migration away from the "900" entertainment service business (which was the
exclusive avenue for Club 900 product marketing and member procurement)
materially contributed to the decrease in such net revenues during the year
ended November 30, 1999. This reduction was partially offset by royalty income
of approximately $2.8 million, earned in consideration for the termination of
the Company's active role in the "900" pay per call business. The royalty
agreement became effective June 1, 1999, and therefore, there was no comparative
prior year royalty revenue. The LEC Billed product and service segment's single
largest decrease related to the Company's "900" entertainment services,
specifically the pay-per-call portion. This decrease in net revenues amounted to
approximately $24.5 million, or a 100% decrease when compared with the prior
year and is directly related to both the cessation of the Company's active
participation in the "900" pay-per-call business as a result of the consummation
of the ARS Agreement, as well as the June 1998 repositioning of such revenue as
an offsetting component of the cost of sales of the Company's Customer
Acquisition services segment. See -- Prior Year Special Charge.

     Other reductions in the Company's net revenues were attributable to the
Customer Acquisition services segment, where decreases in conventional cellular
phone customer acquisitions approximated $4.6 million, or a 100% reduction when
compared to the prior year, and a decrease in prepaid cellular phone customer
acquisitions of $1.7 million, or 100% when compared to the prior year. The
decrease in conventional cellular acquisitions was the result of the Company's
sale, on November 30, 1998, of its interest in the consolidated majority owned
entity that provided such services. The decrease in prepaid cellular phone
customer acquisitions was the result of the Company's dissolution of its prepaid
cellular phone customer acquisition subsidiary, effective December 1, 1998.

     The Company's net revenue decreases were partially mitigated by the
Customer Acquisition service segment, specifically from the long distance
customer acquisition component ("LDCA") of such segment. LDCA revenues and
related usage increased by approximately $6.6 million from the prior year's
comparable period, or 27%. The customer acquisition commission component
decreased from approximately $23.8 million in the year ended November 30, 1998
to approximately $21.6 million in the year ended November 30, 1999, for a
decrease of approximately $2.2 million, or 9.1%. Due to the cessation of the
Company's primary long distance customer acquisition program with Qwest,
effective July 31, 1999, and the complete cessation of all other Qwest marketing
efforts in November 1999 (See -- "Termination of Residential Long Distance
Customer Acquisition Marketing"), management anticipates that the long distance
acquisition commission revenues will be non-existent in subsequent fiscal
periods. The Company's net revenues earned pursuant to

                                        18
<PAGE>   20

usage sharing agreements with Qwest, whereby the Company earned a percentage of
an acquired customer's long distance telephone usage, increased to approximately
$9.1 million in the year ended November 30, 1999, from approximately $311,000
for the year ended November 30, 1998, representing an increase of approximately
$8.8 million. The percentage of usage sharing revenues to which the Company will
be entitled to in future fiscal periods has been substantially reduced pursuant
to the November 30, 1999 cessation of the Company's marketing efforts directed
at acquiring new long distance customers for Qwest. The usage sharing agreement
revenues are a product of current customer acquisitions and the retained
customers acquired in prior quarterly periods. Pursuant to the Company's
terminated marketing efforts, management believes that the Company's net
revenues under existing usage sharing agreements will decline in future fiscal
periods, and become a less meaningful component of the Company's Customer
Acquisition segment revenues.

     The Company's reported net revenues are a product of the gross revenues
generated within each reporting period less the provision for chargebacks for
the related reporting period, which is recorded as a direct reduction from such
gross revenues, except for revenues generated from royalties and long distance
acquisition commissions, which are not subject to provision for consumer
chargebacks.

     The Company's gross revenues for its LEC Billed product and service
segment, Customer Acquisition service segment, E-commerce segment and Corporate
and other, for the year ended November 30, 1999 and 1998 are presented below:

                          GROSS REVENUES -- BY SEGMENT

<TABLE>
<CAPTION>
                                GROSS REVENUES
                          ---------------------------    CHANGE-INC(DEC)    CHANGE-INC(DEC)
YEAR ENDED NOVEMBER 30,      1999            1998              $$$                %%%
-----------------------   -----------    ------------    ---------------    ---------------
<S>                       <C>            <C>             <C>                <C>
LEC Billed products and
  services..............  $21,272,972    $118,231,326     $(96,958,354)           (82%)
Customer Acquisition
  services..............   30,687,009      32,453,619       (1,766,610)            (5%)
E-commerce..............        7,634              --            7,634            100%
Corporate and other.....      169,575         501,918         (332,343)           (66%)
                          -----------    ------------     ------------            ---
          TOTAL.........  $52,137,190    $151,186,863     $(99,049,673)           (66%)
                          ===========    ============     ============            ===
</TABLE>

     The factors listed in the net revenue section describing the reasons for
the changes in net revenues for the year ended November 30, 1999, as compared to
the year ended November 30, 1998, are directly applicable to gross revenues as
well.

     The provisions for chargebacks for the Company's four segments, where
applicable, are presented below for the years ended November 30, 1999 and 1998:

                           CHARGEBACKS -- BY SEGMENT

<TABLE>
<CAPTION>
                                   CHARGEBACKS
                            -------------------------    CHANGE-INC(DEC)    CHANGE-INC(DEC)
YEAR ENDED NOVEMBER 30,        1999          1998              $$$                %%%
-----------------------     ----------    -----------    ---------------    ---------------
<S>                         <C>           <C>            <C>                <C>
LEC Billed products and
  services................  $9,297,350    $54,228,961     $(44,931,611)           (83%)
Customer Acquisition
  services................          --      2,089,523       (2,089,523)          (100%)
E-commerce................           0             --                0            100%
Corporate and other.......          --        178,128         (178,128)          (100%)
                            ----------    -----------     ------------           ----
          TOTAL...........  $9,297,350    $56,496,612     $(47,199,262)           (84%)
                            ==========    ===========     ============           ====
</TABLE>

     The decrease in the provision for chargebacks is directly related to the
decrease in gross revenues, specifically the "900" pay-per-call business
cessation, the termination of enhanced service marketing, the

                                        19
<PAGE>   21

ARS transactions effective on the Club 900 product and the sale of the Company's
conventional cellular phone customer acquisition business. The actual
chargebacks incurred for services and programs, as referred to above, that are
no longer being marketed, are charged against the previously established
reserves, with any adjustment being reflected currently.

     The Company's cost of revenues, which are comprised of (1) marketing costs
directly associated with the procurement and retention of customers, which
includes direct response advertising costs, promotional costs and premium
fulfillment costs, and (2) the related billing, collection and customer service
costs, both of which are offset by the net revenue generated from certain
premium offerings in conjunction with the marketing of other products and
services.

     The Company's cost of revenues for the years ended November 30, 1999 and
1998 are presented below:

SEGMENT DATA -- COST OF SALES

<TABLE>
<CAPTION>
                                     COST OF SALES             CHANGE-           CHANGE-
                               -------------------------      INC(DEC)          INC(DEC)
YEAR ENDED NOVEMBER 30,           1999          1998             $$$               %%%
-----------------------        -----------   -----------   ---------------   ---------------
<S>                            <C>           <C>           <C>               <C>
LEC Billed products and
  services...................  $ 2,518,547   $46,886,761    $(44,368,214)         (95%)
Customer Acquisition
  services...................   24,416,056    32,779,607      (8,363,552)         (26%)
E-commerce...................        2,084            --           2,084          100%
Corporate and other..........       15,410       370,747        (355,337)         (96%)
                               -----------   -----------    ------------          ----
          TOTAL..............  $26,952,097   $80,037,115    $(53,085,018)         (66%)
                               -----------   -----------    ------------          ----
</TABLE>

CONSOLIDATED COST OF SALES, BY COMPONENT

<TABLE>
<CAPTION>
                                    COST OF SALES              CHANGE-           CHANGE-
                              --------------------------      INC(DEC)          INC(DEC)
YEAR ENDED NOVEMBER 30,          1999           1998             $$$               %%%
-----------------------       -----------   ------------   ---------------   ---------------
<S>                           <C>           <C>            <C>               <C>
Advertising, promotion and
  fulfillment costs.........  $29,207,076   $ 58,402,819    $(29,195,743)         (50%)
Service Bureau fees,
  including customer service
  and psychic operators.....    6,980,932     32,945,647     (25,964,715)         (79%)
"900" Pay-per-call Premium
  net revenues..............   (9,235,911)   (11,311,351)      2,075,440          (18%)
                              -----------   ------------    ------------          ----
          TOTAL.............  $26,952,097   $ 80,037,115    $(53,085,018)         (66%)
                              -----------   ------------    ------------          ----
</TABLE>

     The decrease in cost of revenues in the fiscal year ended November 30, 1999
when compared to fiscal 1998, is a direct result of the Company's significantly
reduced, and in certain cases terminated, marketing efforts and the
corresponding decrease in the related expenditures. The reduction of these costs
resulted from the Company's discontinuance of marketing its enhanced services in
response to the termination, by BIC, of the billing services agreement in
November 1998 (see "-- Service Bureaus and Local Exchange Carriers"). In
addition, the Company significantly reduced its marketing efforts directed at
the Company's residential long distance customer acquisition activities, and
effective November 30, 1999, terminated such efforts, due to (a) increased costs
incurred in acquiring long distance customers, (b) associated fulfillment cost
increases and unfavorable redemption rates, and (c) significantly increased
customer service costs. These three factors contributed to decreased margins in
the Company's long distance customer acquisition component of its Customer
Acquisition services segment. Additionally, the decreases in the cost of
revenues was attributable to the discontinuance of the Company's active
marketing of its "900" pay per call services (see "-- Prior Year Special
Charge"), and the commencement of offering such service as a premium to
potential and acquired long distance customers, with the net revenues earned
therefrom recorded as a reduction to advertising and marketing costs. Also, in
accordance with the 900 Agreement, the Company terminated the marketing of its
Club 900 product.

                                        20
<PAGE>   22

     The following table presents the major cost of sale components, distributed
over their applicable segments for the years ended November 30, 1999 and 1998,
and the changes in absolute dollars and in percentage terms for such two-year
period:

TOTAL COST OF SALES -- BY SEGMENT, BY COMPONENT

<TABLE>
<CAPTION>
                                          COST OF SALES              CHANGE-       CHANGE-
                                    --------------------------      INC(DEC)       INC(DEC)
YEAR ENDED NOVEMBER 30,                1999           1998             $$$           %%%
-----------------------             -----------   ------------   ---------------   --------
<S>                                 <C>           <C>            <C>               <C>
LEC BILLED PRODUCTS AND SERVICES
Advertising, promotion and
  fulfillment costs...............  $   402,492   $ 24,732,314    $(24,329,822)      (98%)
Service Bureau fees, including
  customer service and psychic
  operators.......................    2,099,415     22,154,447     (20,055,032)      (91%)
                                    -----------   ------------    ------------      -----
TOTAL LEC BILLED PRODUCTS AND
  SERVICES........................  $ 2,501,907   $ 46,886,761    $(44,384,854)      (95%)
                                    -----------   ------------    ------------      -----
CUSTOMER ACQUISITION SERVICES
Advertising, promotion and
  fulfillment costs...............  $28,770,450   $ 33,392,581    $ (4,622,131)      (14%)
"900" Pay-per-call Premium net
  revenues........................   (9,235,911)   (11,311,351)      2,075,440       (18%)
                                    -----------   ------------    ------------      -----
  Net Advertising.................  $19,534,539   $ 22,081,230    $ (2,546,691)      (12%)
Service Bureau fees, including
  customer service and psychic
  operators.......................  $ 4,881,517   $ 10,698,377    $ (5,816,860)      (54%)
                                    -----------   ------------    ------------      -----
TOTAL CUSTOMER ACQUISITION
  SERVICES........................  $24,416,056   $ 32,779,607    $ (8,363,552)      (26%)
                                    -----------   ------------    ------------      -----
E-COMMERCE AND CORPORATE AND OTHER
Advertising, promotion and
  fulfillment costs...............  $    34,134   $    277,924    $   (243,790)      (88%)
Service Bureau fees, including
  customer service................  $        --   $     92,823    $    (92,823)     (100%)
                                    -----------   ------------    ------------      -----
          TOTAL E-COMMERCE AND
            CORPORATE.............  $    34,134   $    370,747    $   (336,613)      (91%)
                                    -----------   ------------    ------------      -----
</TABLE>

     The Company's selling, general and administrative expenses ("SG&A") are
principally comprised of (a) compensation costs and related expenses for
executive, sales, finance and general administration personnel, (b) professional
fees, (c) insurance costs, (including director and officer liability insurance
with a current annual premium of approximately $528,000), (d) occupancy and
other equipment rental costs, and (e) all other general and miscellaneous
corporate expense items.

                                        21
<PAGE>   23

     The Company's SG&A expenses for the years ended November 30, 1999 and 1998
are presented, on a segment distribution basis, below:

CONSOLIDATED -- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

<TABLE>
<CAPTION>
                                                                     CHANGE-       CHANGE-
                                                      SG&A          INC(DEC)       INC(DEC)
YEAR ENDED NOVEMBER 30,                 1999          1998             $$$           %%%
-----------------------              -----------   -----------   ---------------   --------
<S>                                  <C>           <C>           <C>               <C>
LEC Billed products and services...  $ 1,259,547   $ 6,041,218     $(4,781,671)      (79%)
Customer Acquisition services......    5,997,437     4,598,741       1,398,697        30%
E-commerce.........................      441,974            --         441,974       100%
Corporate and other................    3,182,198     3,716,933        (534,735)      (14%)
                                     -----------   -----------     -----------       ----
          CONSOLIDATED TOTALS......  $10,881,156   $14,356,892     $(3,475,736)      (24%)
                                     -----------   -----------     -----------       ----
</TABLE>

     The decrease in SG&A expense in the year ended November 30, 1999, compared
to the prior year, is primarily attributable to the Company's reduction in
personnel (and all associated costs of insurance, payroll taxes and overhead
utilization). The Company commenced such personnel reductions in September 1998
and continued the reductions into the third quarter of the fiscal year ended
November 30, 1999. Additional reductions in SG&A are attributable to the terms
of the 900 Agreement, pursuant to which the Company (a) eliminated its media
buying operation which included a staff of approximately twenty-one employees,
(b) was released from continuing rent expense obligations under an assignment of
a lease for the office space occupied by such media department, and (3) disposed
of all the media operation's property and equipment.

     The Company's other income classification, primarily consisting of interest
income earned on the Company's debt based marketable securities, for the years
ended November 30, 1999 and 1998 are presented below:

                        OTHER INCOME, PRIMARILY INTEREST

<TABLE>
<CAPTION>
                                             YEAR ENDED
                                            NOVEMBER 30,           CHANGE       CHANGE
                                      ------------------------    INC (DEC)    INC (DEC)
                                         1999          1998           $            %
                                      ----------    ----------    ---------    ---------
<S>                                   <C>           <C>           <C>          <C>
Other income, primarily interest....  $1,446,494    $2,212,435    $(765,941)     (35%)
</TABLE>

     An additional source of interest income in fiscal 1999 and 1998 related to
interest income earned on funds held in reserve for future chargebacks which
were escrowed by the Company's primary "900" entertainment service bureau. Such
escrowed reserves been have reduced to immaterial levels in fiscal 1999,
pursuant to the Company's termination of its offering of "900" entertainment
services resulting from the terms of the 900 Agreement, and will not contribute
significant amounts of interest income in subsequent fiscal periods.

     The Company's effective income tax rate was a result of the combination of
federal income taxes at statutory rates and state taxes.

LIQUIDITY AND CAPITAL RESOURCES

     At November 30, 2000, the Company had cash and cash equivalents of
approximately $4.6 million, reflecting a decrease of approximately $3.4 million
when compared to the $7.9 million in cash and cash equivalents held at November
30, 1999. This decrease was more than offset by an increase in the Company's
liquid interest bearing investments of approximately $6.4 million, discussed
below.

     During the year ended November 30, 2000, net cash provided by operating
activities was $2,345,477, which was primarily attributable to the Company's net
income ($5.2 million), offset by decreases in the Company's accrued expenses and
reserves for chargebacks.

                                        22
<PAGE>   24

     The $5,535,338 in net cash used in investing activities primarily resulted
from investments in marketable securities purchases, principally high-grade
commercial paper and auction rate securities. Such securities are managed by the
Company's professional independent investment manager. The Company's
net-marketable securities increased approximately $2.2 million during the year
ended November 30, 2000, to $38,676,890, compared to $36,511,925 in marketable
securities held at November 30, 1999. Included as an offset in the net increase
in marketable securities are approximately $4.4 million in unrealized losses
that did not directly affect the Company's liquidity accounts during the fiscal
year ended November 30, 2000. Additional items requiring the use of investing
activity funds during the year ended November 30, 2000 approximated $1.1
million, and related to the acquisition of approximately $893,000 in long-term
investments, carried at cost, and $225,000 in capital expenditures, principally
computers, and peripheral equipment.

     Cash used by financing investing activities during the year ended November
30, 2000 amounted to $198,362, which is comprised of the difference between (a)
$747,052, which was used for the repurchase and retirement of the Company's
common stock, less (b) $408,600, which was provided from the exercise of the
Company's stock options, and $140,000, which was provided by a minority interest
capital contribution.

     Historically, the Company's primary cash requirements have been to fund the
cost of advertising and promotion, with additional funds having been used in the
purchasing of equipment and services in connection with the commencement of new
business lines and further development of businesses currently being test
marketed. During the fiscal year ended November 30, 2000, the Company executed
its on-line, consumer targeted direct marketing strategy. The Company's future
plans and business strategy call for its Internet based E-commerce segment to be
its primary operating focus, with management's intention being for such segment
to supply a material portion of future revenues. The continuation of the
Internet initiative may have a significant impact on the Company's capital and
liquidity resources relating to the E-commerce segment's possible expenditures
for (a) marketing and advertising campaigns, (b) the cost of additional
personnel required to occupy executive, operational and administrative
positions, (c) product development costs, (d) new site development and
technology based costs, and (e) other miscellaneous costs. During the fiscal
year ended November 30, 1999, the Company's Internet business plan and strategy
prompted the Company to terminate the active marketing of its legacy products
and services. Accordingly, this legacy activity may contribute, in a
significantly decreasing degree, to the Company's cash flows and net income in
subsequent fiscal periods. This should be considered when using the Company's
historical results in evaluating future operations, cash flows and financial
position. Nevertheless, the Company continues to explore opportunities to offer
other LEC Billed products and services in the future, if determined to be in the
best interests of the Company.

     Under currently proposed operating plans and assumptions, management
believes that projected cash flows from operations and available cash resources
will be sufficient to satisfy the Company's anticipated cash requirements for at
least the next twelve months. Currently, the Company does not have any material
long-term obligations, nor does the Company intend to incur any long-term
obligations in the near future. As the Company seeks to extend its reach into
the E-commerce arena, as well as identify new and other consumer oriented
products and services, the Company may use existing cash reserves, long-term
financing, or other means to finance such diversification. See "Forward Looking
Information May Prove Inaccurate".

PRIOR YEAR TRANSACTIONS IMPACTING CURRENT AND FUTURE FISCAL PERIODS

     In June 1999, the Company entered into a series of agreements
(collectively, the "Transaction Agreements") pursuant to which the Company
ceased offering its telephone entertainment services. The following is a summary
of certain of the Transaction Agreements:

     (i) Agreement Regarding 900 Pay-Per-Call Psychic Services (the "900
Agreement"), dated as of May 26, 1999, by and between the Company and Access
Resource Services, Inc. ("ARS"), pursuant to which the Company agreed to refrain
until January 17, 2001 from conducting, marketing, advertising or promoting
certain "stand alone" 900 Pay-Per-Call Psychic Services described in the
Agreement (the "900 Psychic Services") directly or indirectly through any
affiliate. In addition, the Company agreed to cease the conduct of the media
buying operation which it conducted under the name "Quintel Media" and ARS
agreed to assume

                                        23
<PAGE>   25

responsibility for the "Quintel Media" employees and for the lease of the
premises used by "Quintel Media" in Fort Lauderdale, Florida, and to acquire the
computer equipment and other furniture, fixtures and leasehold improvements used
by "Quintel Media" at such premises.

     In consideration for the Company's acceptance of the terms of the 900
Agreement, ARS and any of its affiliates offering 900 Pay-Per-Call Psychic
Services and/or membership club services, agreed to pay to the Company certain
royalty fees relative to such service offerings. ARS is required to pay such
royalty fees from and after the consummation of the transactions contemplated by
the Transaction Agreements, and until January 17, 2001. For the fiscal year
ended November 30, 2000 and 1999, these royalties amounted to approximately $3.3
and $2.8 million, or 13% and 6%, respectively, of the Company's net revenues.
Other than these royalty fees, the Company will not be receiving any revenue in
any future fiscal years from telephone entertainment services.

     (ii) Redemption Agreements by and between the Company and each of the
shareholders of ARS, whereby the Company redeemed from such individuals (or
partnerships controlled by them) an aggregate of 1.3 million shares of the
Company's common stock at a purchase price of $1.35 per share, for a total
outlay by the Company of $1,755,000.

PRIOR YEAR SPECIAL CHARGE

     During the fiscal year ended November 30, 1998, the Company experienced
decreasing margins on its "900" entertainment services, attributable to
significant increases in marketing expenditures related thereto and customer
chargebacks. As a result, these services were not providing positive operating
results and cash flow. Consequently, during the quarter ended August 31, 1998,
the Company terminated the marketing of such services as an independent revenue
source and began using them in conjunction with marketing the Company's other
products and services, including its residential distributor program agreement
with Qwest. Accordingly, as required by Statement of Financial Standards No. 121
("FAS 121"), the Company reviewed long-lived assets, including goodwill, for
impairment. The Company evaluated the recoverability of its long-lived assets by
measuring the carrying amount of the assets against projected undiscounted
future cash flows associated with them. The Company determined that the "900"
entertainment services could not be disposed of and there was no predictable
estimate of any future cash flows associated with any alternative uses.
Accordingly, the Company concluded that the intangibles, primarily goodwill,
associated with the Company's 1996 acquisition of the remaining 50% interest in
the limited liability company New Lauderdale, L.C., were impaired. As such, a
non-cash charge of approximately $18.5 million, representing the remaining
balance of the intangibles, primarily goodwill associated with the New
Lauderdale acquisition, was recorded at May 31, 1998.

TRANSACTIONS WITH MAJOR CUSTOMERS

     During the fiscal year ended November 30, 2000, the Company derived
approximately 53% of its revenues from two major customers (see below). In the
prior years ended November 30, 1999 and 1998, the Company had derived
approximately 72% and 20%, respectively, of its revenue from one major customer.
As at November 30, 2000, the Company had either terminated, or had been
terminated, from providing services to such major customers. Accounts receivable
from these major customers were approximately $611,000 and $1,020,000 at
November 30, 2000 and 1999, respectively.

     During the fiscal year ended November 30, 2000, the Company generated its
Off-Line Customer Acquisition revenue exclusively from long distance customer
acquisition agreements with two long distance providers, Qwest Communications
and Talk.com.

     The Company provided marketing services to the long distance carrier LCI
International Telecom Corp., d/b/a Qwest Communications Services ("Qwest"),
primarily through outbound telemarketing and broadcast media, directed at the
acquisition of residential long distance customers for Qwest. In addition to
commissions paid to the Company for its successful customer acquisitions on
behalf of Qwest, the Company also received a portion of Qwest's net revenues
earned from such acquired customers' residential long distance usage. This

                                        24
<PAGE>   26

marketing arrangement with Qwest was terminated in Fiscal 2000, and the Company
does not expect to receive any further revenue from Qwest.

     The Company entered into a series of agreements with Talk.com, Holding
Corp. ("Talk") during the fiscal year ended November 30, 2000, pursuant to which
the Company provided marketing services to Talk directed at the acquisition of
residential long distance customers for Talk. Such agreements obligated Talk to
pay the Company fees for its successful customer acquisitions on behalf of Talk.
In October 2000, Talk terminated its agreements with the Company and,
accordingly, the Company no longer realizes any continuing revenues therefrom.
The Company has commenced legal proceedings to contest what it believes to be
Talk's wrongful termination of its agreements with the Company.

SERVICE BUREAUS AND LOCAL EXCHANGE CARRIERS

     In November 1998, three of the LECs, Ameritech Corp., Bell Atlantic Corp.
and SBC Communications, Inc., refused to bill customers for enhanced services
provided by the Company. This was a result of what the LECs claim was excessive
complaints by customers for "cramming" (unauthorized charges billed to a
customer's phone bill) against the Company and its affiliates. This billing
cessation effectively prevented the Company from selling its enhanced services
in those areas serviced by such LECs.

     As a result of such LEC imposed billing cessation, in November 1998, the
primary billing service provider for the Company's enhanced services, Billing
Information Concepts Corporation ("BIC"), terminated its arrangement with the
Company for providing billing for the Company's enhanced services. BIC continued
to service all data relating to post-billing adjustments to records billed prior
to BIC's self-imposed billing cessation. In December 1998, the Company entered
into an agreement with Transtel, whereby Transtel provided the billing services
previously provided by BIC. In effect, between the termination of the BIC
billing service arrangement and the commencement of billing under the agreement
with Transtel (approximately two months), the Company was unable to bill for any
enhanced services provided.

GOVERNMENT REGULATION

     The Pennsylvania Attorney General's Office has requested the Company to
enter into an Assurance of Voluntary Compliance Agreement to resolve allegations
concerning certain of the Company's sales practices. The Attorney General
alleges that the Company's Fly Free telemarketing program, as well as certain
pay-per-call services, did not adequately disclose to the consumer the terms of
the offer being made. The Agreement would offer refunds to consumers submitting
written complaints within a 90 day window. The Agreement also provides for a
payment to the State in an amount yet to be determined. The Agreement is still
under negotiation.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATE

     Reference is made to the Financial Statements referred to in the
accompanying Index, setting forth the consolidated financial statements of
Quintel Communications, Inc. and subsidiaries, together with the report of
PricewaterhouseCoopers LLP dated February 23, 2001.

                                        25
<PAGE>   27

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS AND EXECUTIVE OFFICERS

     Set forth below are the directors and executive officers of the Company,
their respective names and ages, positions with the Company, principal
occupations and business experiences during at least the past five years and the
dates of the commencement of each individual's term as a director and/or
officer.

<TABLE>
<CAPTION>
NAME                                   AGE                           POSITION
----                                   ---                           --------
<S>                                    <C>   <C>
Jeffrey L. Schwartz..................  52    Chairman of the Board, President and Chief Executive
                                             Officer
Andrew Stollman......................  35    Chief Operating Officer, Secretary and Director
Joshua B. Gillon, Esq. ..............  38    Chief Investment Officer and General Counsel
Daniel Harvey........................  42    Chief Financial Officer
Jay Greenwald........................  36    Director
Murray L. Skala......................  53    Director
Edwin A. Levy........................  61    Director
Lawrence Burstein....................  58    Director
Jack Silver..........................  57    Director
Charles W. Stryker, Ph.D.............  53    Director
</TABLE>

  Directors

     Jeffrey L. Schwartz has been Chairman and Chief Executive Officer of the
Company since January 1995, Secretary/Treasurer from September 1993 to December
1994 and a director since inception of the Company in 1993. On January 1, 2001,
Jay Greenwald resigned as the Company's President and Chief Operating Officer.
Mr. Schwartz thereupon assumed Mr. Greenwald's title of President. From January
1979 until May 1998, Mr. Schwartz was also Co-President and a director of Jami
Marketing Services, Inc., a list brokerage and list management consulting firm,
Jami Data Services, Inc., a database management consulting firm, and Jami
Direct, Inc., a direct mail graphic and creative design firm (collectively, the
"Jami Companies"). The Jami Companies were sold by the principals thereof in May
1998.

     Andrew Stollman has been the Chief Operating Officer since January 1, 2001,
a title he assumed upon Mr. Greenwald's resignation, and Secretary and a
director of the Company since January 1995. From February 15, 2000 until January
1, 2001, Mr. Greenwald was the Company's Executive Vice President and from
January 1995 until February 15, 2000, he was the Company's Senior Vice
President. Mr. Stollman was the Company's President from September 1993 to
December 1994. From August 1992 to June 1993, Mr. Stollman was a consultant to
Cas-El, Inc., from November 1992 to June 1993, manager at Media Management
Group, Inc., and from December 1990 to August 1992, national marketing manager
for Infotrax Communications, Inc. and Advanced Marketing & Promotions, Inc.,
companies engaged in providing telephone entertainment services.

     Jay Greenwald has been a director of the Company since inception and is
presently serving as a consultant to the Company. See "Certain Relationships and
Related Transactions." On January 1, 2001, Mr. Greenwald resigned as President
and Chief Operating Officer of the Company, positions he had held since January
1995. Mr. Greenwald had also been the Company's Vice President from inception to
December 1994. From January 1991 to August 1992, Mr. Greenwald was Vice
President of Newald Direct, Inc. and, from July 1990 to January 1991, President
of Newald Marketing, Inc., companies engaged in direct response marketing.

     Murray L. Skala has been a director of the Company since October 1995. Mr.
Skala has been a partner in the law firm of Feder, Kaszovitz, Isaacson, Weber,
Skala & Bass LLP since 1976. Mr. Skala is also a director

                                        26
<PAGE>   28

of JAKKS Pacific, Inc., a publicly-held company in the business of developing,
marketing and distributing children's toys.

     Edwin A. Levy has been a director of the Company since November 1995. Mr.
Levy has been the Chairman of the Board of Levy, Harkins & Co., Inc., an
investment advisor, since 1979, and is also a director of Coastcast Corp., a
publicly-held company in the business of manufacturing golf club heads.

     Lawrence Burstein has been a director of the Company since April 1999.
Since March 1996, Mr. Burstein has been Chairman of the Board and a principal
shareholder of Unity Venture Capital Associates, Ltd., a private venture capital
firm. For approximately ten years prior thereto, Mr. Burstein was the President,
a director and principal stockholder of Trinity Capital Corporation, a private
investment banking concern. Trinity ceased operations upon the formation of
Unity Venture in 1996. Mr. Burstein is a director of several companies, being,
respectively, THQ, Inc., engaged in the development and marketing of games for
Sony, Nintendo and Sega game systems; Brazil Fast Food Corporation, which owns
and operates the second largest chain of fast food outlets in Brazil; CAS
Medical Systems, Inc., engaged in the manufacture and marketing of blood
pressure monitors and other disposable products, principally for the neonatal
market; MNI Group, Inc., engaged in the manufacturing and distribution of
nutritional supplements; I.D. Systems Inc., engaged in the design, development
and production of a wireless monitoring and tracking system which uses radio
frequency technology; and Unity First Acquisition Corporation, a publicly-held
acquisition vehicle, of which Mr. Burstein is also President.

     Jack Silver has been a director of the Company since January 1, 2001. He is
the principal investor and manager of SIAR Capital, an independent investment
fund that invests primarily in undervalued, emerging growth companies. Mr.
Silver, a certified public accountant by background, has managed SIAR capital
for over twenty years.

     Charles W. Stryker, Ph.D. has been a director of the Company since January
1, 2001. Dr. Stryker is the Chairman and CEO of Naviant Marketing Solutions,
Inc., a private company providing precision marketing solutions to web
advertisers, web publishers and consumer marketers. From October 1997 to
November 1999, Dr. Stryker was the President of IQ2.net and Zona, both
subsidiaries of IntelliQuest Information Group, Inc. (which was acquired by
Naviant), and from 1991 to 1997, he was the President and CEO of the Information
Technology Forum, Inc., a management consulting firm specializing in the
development of content-based electronic products. In addition to his duties as
President and CEO of Naviant, Dr. Stryker was the Founder and Executive Director
of the MkIS User Forum. The Forum is an international trade group composed of
executives responsible for the design and implementation of the corporate
Marketing System (MkIS) for major global marketers. In addition to his
professional activities, Dr. Stryker accepted an appointment at the University
of Pennsylvania, Wharton School of Business. He has lectured in the Sol C.
Snider Entrepreneurial Center, where he taught graduate courses in
Entrepreneurial Studies. Dr. Stryker is also a director of 24/7 Media, Inc., a
publicly held Internet based advertising company.

     All directors hold office until the next annual meeting of stockholders and
the election and qualification of their successors. Directors receive no cash
compensation for serving on the Board of Directors other than reimbursement of
reasonable expenses incurred in attending meetings. Directors who are not
employees of the Company are compensated for their services and attendance at
meetings through the grant of options pursuant to the Company's Stock Option
Plan.

  Executive Officers

     Officers are elected annually by the Board of Directors and serve at the
direction of the Board of Directors. Two of the Company's executive officers,
Jeffrey L. Schwartz and Andrew Stollman, are also directors of the Company.
Information with regard to such persons is set forth above under the heading
"Directors."

     The remaining executive officers are Joshua B. Gillon, Esq., the Company's
Chief Investment Officer and General Counsel, and Mr. Daniel Harvey, the
Company's Chief Financial Officer.

                                        27
<PAGE>   29

     Mr. Gillon, age 38, was appointed Chief Investment Officer and General
Counsel of the Company in April 2000. From April 1999 through March 2000, Mr.
Gillon served as the Project Director for Total Energy, Inc., a home heating oil
industry consolidation. From February 1996 to March 1999, he was a partner at
the law firm of Schneck, Weltman & Hashmall, LLP, specializing in mergers,
acquisitions and securities law. From 1990 to 1996, he was an associate with the
law firm of Kronish Lieb Weiner & Hellman, LLP and from 1988 to 1990, he was an
associate with the law firm of Seward & Kissel, LLP.

     Mr. Harvey, age 42, has been Chief Financial Officer of the Company since
January 1997. He joined the Company in September 1996. From November 1991 to
August 1996, he was a Senior Manager with the accounting firm of Feldman,
Gutterman, Meinberg & Co. Mr. Harvey is a Certified Public Accountant.

     The Company has obtained "key man" life insurance in the amount of
$1,000,000 on each of the lives of Jeffrey L. Schwartz and Andrew Stollman.

THE COMMITTEES

     The Board of Directors has an Audit Committee, a Compensation Committee and
a Stock Option Committee. The Board of Directors does not have a Nominating
Committee, and the usual functions of such a committee are performed by the
entire Board of Directors.

     Audit Committee.  The functions of the Audit Committee are to recommend to
the Board of Directors the engagement of the independent accountants, review the
audit plan and results of the audit engagement, review the independence of the
auditors and review the adequacy of the Company's system of internal accounting
controls. On June 13, 2000, the Board of Directors adopted a new Audit Committee
Charter that complies with the new standards set forth in Securities and
Exchange Commission regulations and the Nasdaq Stock Market's independent
director and Audit Committee listing standards. These changes require, in part,
that all companies listed on Nasdaq or that had applied for listing on Nasdaq
prior to December 14, 1999, certify by June 14, 2000 that they have adopted a
formal written Audit Committee Charter and that they will review and assess the
adequacy of the charter on an annual basis. In addition, all of the companies
must also certify that they comply, and will continue to comply, with the new
Audit Committee structure and membership requirements set forth in such
regulations and listing standards by June 14, 2001. The current members of the
Audit Committee are Messrs. Levy, Burstein, Silver and Skala.

     Compensation Committee.  The function of the Compensation Committee is to
make recommendations to the Board with respect to compensation of management
employees. In addition, the Compensation Committee administers plans and
programs, with the exception of the Company's stock option plans, relating to
employee benefits, incentives and compensation. The current members of the
Compensation Committee are Messrs. Skala and Burstein.

     Stock Option Committee.  The Stock Option Committee determines the persons
to whom options should be granted under the Company's stock option plans and the
number of options to be granted to each person. The current members of the Stock
Option Committee are Messrs. Levy and Burstein.

ATTENDANCE AT MEETINGS

     From December 1, 1999 through November 30, 2000, the Board of Directors,
Stock Option Committee, Audit Committee and Compensation Committee each met or
acted without a meeting pursuant to unanimous written consent five times, three
times, one time and two times, respectively.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     To the best of the Company's knowledge, during the fiscal year ended
November 30, 2000, (i) Daniel Harvey, Murray L. Skala, Larry Burstein, Ed Levy
and Michael Miller each untimely filed one report on Form 4, each reporting one
late transaction, (ii) Jeffrey L. Schwartz untimely filed two reports on Form 4,
reporting a total of two late transactions; and (iii) Jay Greenwald untimely
filed three reports on Form 4, reporting a total of three late transactions.
These individuals were executive officers, directors and/or beneficial owners of
more than 10% of the Common Stock of the Company during the fiscal year ended
                                        28
<PAGE>   30

November 30, 2000. To the best of the Company's knowledge, all other Forms 3, 4
and 5 required to be filed during the fiscal year ended November 30, 2000 were
done so on a timely basis.

ITEM 11.  EXECUTIVE COMPENSATION

     The following table sets forth the Company's executive compensation paid
during the three fiscal years ended November 30, 2000, 1999 and 1998 for the
Chief Executive Officer and the Company's four most highly compensated executive
officers of the Company (other than the Chief Executive Officer) whose cash
compensation for the fiscal year ended November 30, 2000 exceeded $100,000 (the
"Named Officers").

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                       Long Term Compensation
                                                                          -------------------------------------------------
                                              Annual Compensation                        Awards             Payouts
                                        -------------------------------                ----------   -----------------------
              (a)                (b)      (c)        (d)         (e)         (f)          (g)           (h)          (i)
-------------------------------  ----   --------   --------   ---------   ----------   ----------   -----------   ---------
                                                                OTHER                  SECURITIES                 ALL OTHER
                                                               ANNUAL     RESTRICTED   UNDERLYING                  COMPEN-
NAME AND                                 SALARY     BONUS     COMPENSA-     STOCK       OPTIONS        PLAN        SATION
PRINCIPAL POSITION               YEAR     ($)        ($)       TION($)      AWARDS        (#)       PAYOUTS ($)      ($)
------------------               ----   --------   --------   ---------   ----------   ----------   -----------   ---------
<S>                              <C>    <C>        <C>        <C>         <C>          <C>          <C>           <C>
Jeffrey L. Schwartz............  2000   $405,000   $185,000       0           0         100,000          0            0
  Chairman and                   1999   $362,000   $100,000       0           0               0          0            0
  Chief Executive Officer        1998   $453,750          0       0           0           8,750          0            0
                                                          0                             128,495
Jay Greenwald(1)...............  2000   $405,000          0       0           0         100,000          0            0
  President and                  1999   $362,000   $100,000       0           0               0          0            0
  Chief Operating Officer        1998   $453,750          0       0           0           8,750          0            0
                                                                                        128,495
Andrew Stollman................  2000   $367,000   $165,000       0           0         100,000          0            0
  Executive Vice President       1999   $266,000   $100,000       0           0               0          0            0
  and Secretary                  1998   $302,500          0       0           0           8,750          0            0
                                                                                         96,260
Joshua B. Gillon, Esq. ........  2000   $133,000   $ 25,000       0           0         100,000          0            0
  Chief Investment Officer and
  General Counsel(2)
Daniel Harvey..................  2000   $177,000   $ 30,000       0           0          29,000          0            0
  Chief Financial Officer        1999   $155,800   $ 20,000       0           0               0          0            0
                                 1998   $127,000   $ 50,000       0           0           7,729          0            0
</TABLE>

---------------
(1) Mr. Greenwald resigned as an Executive Officer and employee of the Company
    on January 1, 2001. Any severance payments made to Mr. Greenwald in
    connection with such resignation were made during the fiscal year ending
    November 30, 2001 (see "Certain Relationships and Related Transactions").

(2) Mr. Gillon's salary is $200,000 per annum, however he was first employed by
    the Company as its Chief Investment Officer and General Counsel on April 5,
    2000.

     The following table sets forth certain information regarding the granting
of options to the Named Officers during the fiscal year ended November 30, 2000.

                       OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                                                         Potential Realizable
                                                                                          Value at Assessed
                                                                                           Annual Rates of
                                                                                       Stock Price Appreciation
                                              Individual Grants                            for Option Term
                           --------------------------------------------------------    ------------------------
           (a)                 (b)             (c)             (d)          (e)           (f)           (g)
-------------------------  -----------   ---------------   -----------   ----------    ---------    -----------
                            NUMBER OF
                           SECURITIES      % OF TOTAL
                           UNDERLYING    OPTIONS GRANTED   EXERCISE OR
                             OPTIONS     TO EMPLOYEES IN   BASE PRICE    EXPIRATION
NAME                       GRANTED(#)    FISCAL YEAR(1)     ($/SHARE)       DATE         5%($)        10%($)
----                       -----------   ---------------   -----------   ----------    ---------    -----------
<S>                        <C>           <C>               <C>           <C>           <C>          <C>
Jeffrey L. Schwartz......    100,000          17.85%        $6.75           3/8/10     $424,504     $1,075,776
Jay Greenwald............    100,000          17.85          6.75           3/8/10      424,504      1,075,776
Andrew Stollman..........    100,000          17.85          6.75           3/8/10      424,504      1,075,776
</TABLE>

                                        29
<PAGE>   31

<TABLE>
<CAPTION>
                                                                                         Potential Realizable
                                                                                          Value at Assessed
                                                                                           Annual Rates of
                                                                                       Stock Price Appreciation
                                              Individual Grants                            for Option Term
                           --------------------------------------------------------    ------------------------
           (a)                 (b)             (c)             (d)          (e)           (f)           (g)
-------------------------  -----------   ---------------   -----------   ----------    ---------    -----------
                            NUMBER OF
                           SECURITIES      % OF TOTAL
                           UNDERLYING    OPTIONS GRANTED   EXERCISE OR
                             OPTIONS     TO EMPLOYEES IN   BASE PRICE    EXPIRATION
NAME                       GRANTED(#)    FISCAL YEAR(1)     ($/SHARE)       DATE         5%($)        10%($)
----                       -----------   ---------------   -----------   ----------    ---------    -----------
<S>                        <C>           <C>               <C>           <C>           <C>          <C>
Joshua B. Gillon.........    100,000          17.85          4.59375        4/5/05      126,917        280,453
Daniel Harvey............     15,000           2.68          5.6875       12/10/04       23,570         52,084
                              14,000           2.50          4.59375        4/5/05       17,768         39,263
</TABLE>

---------------
(1) Options to purchase a total of 560,250 shares of Common Stock were granted
    to the Company's employees, including the Named Officers, during the fiscal
    year ended November 30, 2000.

     The following table sets forth certain information regarding options
exercised and exercisable during the fiscal year ended November 30, 2000 and the
value of the options held as of November 30, 2000 by the Named Officers.

                AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                        AND FISCAL YEAR-END OPTION VALUE

<TABLE>
<CAPTION>
         (a)                  (b)             (c)                    (d)                            (e)
----------------------  ---------------   -----------   -----------------------------   ---------------------------
                                                            NUMBER OF SECURITIES           VALUE OF UNEXERCISED
                                                           UNDERLYING UNEXERCISED          IN-THE-MONEY OPTIONS
                                                        OPTIONS AT FISCAL YEAR-END(#)    AT FISCAL YEAR-END(1)($)
                        SHARES ACQUIRED      VALUE      -----------------------------   ---------------------------
NAME                    ON EXERCISE(#)    REALIZED($)   EXERCISABLE     UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
----                    ---------------   -----------   -----------     -------------   -----------   -------------
<S>                     <C>               <C>           <C>             <C>             <C>           <C>
Jeffrey L. Schwartz...           0                0       237,245               0         $18,796           0
Jay Greenwald.........           0                0       237,245               0          18,796           0
Andrew Stollman.......           0                0       205,010               0          14,767           0
Joshua B. Gillon......           0                0        33,333          66,667              (2)         (2)
Daniel Harvey.........       7,730          $26,950        14,500          14,500              (2)         (2)
</TABLE>

---------------
(1) The product of (x) the difference between $2.0625 (the closing price of the
    Company's Common Stock at November 30, 2000, as reported by Nasdaq) and the
    exercise price of the unexercised options, multiplied by (y) the number of
    unexercised options.

(2) None of the options held by Messrs. Gillon and Harvey were in the money as
    of November 30, 2000.

BOARD COMPENSATION

     As a result of the Company's policy to compensate non-employee directors
for their services, the Company's 1996 Stock Option Plan, as amended and
restated (the "Plan"), provides for an automatic one-time grant to all
non-employee directors of options to purchase 25,000 shares of Common Stock and
for additional automatic quarterly grants of options to purchase 6,250 shares of
Common Stock. The exercise prices for all of such non-employee director options
are the market value of the Common Stock on their date of grant.

COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION

     The Compensation Committee of the Company's Board of Directors from
December 1, 1999 through November 3, 2000 consisted of Murray L. Skala and
Lawrence Burstein. See "Certain Relationships and Related Transactions."

                                        30
<PAGE>   32

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth information, as of February 23, 2001, based
upon information obtained from the persons named below, regarding beneficial
ownership of the Company's Common Stock by (i) each person who is known by the
Company to own beneficially more than 5% of the outstanding shares of its Common
Stock, (ii) each director of the Company, (iii) each of the Named Officers, and
(iv) all executive officers and directors of the Company as a group.

<TABLE>
<CAPTION>
NAME AND ADDRESS OF                                             NUMBER OF SHARES         PERCENT
BENEFICIAL OWNER(1)                                           BENEFICIALLY OWNED(2)    OF CLASS(2)
-------------------                                           ---------------------    -----------
<S>                                                           <C>                      <C>
Jay Greenwald...............................................        2,739,790(3)          17.17%
  16 Fairway Ct.
  Cresskill, NJ 07626
Jeffrey L. Schwartz.........................................        2,535,110(4)          15.89
Michael G. Miller...........................................        2,166,723             13.79
Andrew Stollman.............................................        1,252,242(5)           7.86
Jack Silver.................................................        1,165,850(6)           7.40
  660 Madison Avenue
  New York, NY 10021
Edwin A. Levy...............................................          125,000(7)              *
  570 Lexington Avenue
  New York, NY 10022
Murray L. Skala.............................................           92,750(8)              *
  750 Lexington Avenue
  New York, NY 10022
Lawrence Burstein...........................................           68,000(9)              *
  245 Fifth Avenue
  New York, NY 10016
Joshua B. Gillon, Esq. .....................................           66,666(10)             *
Daniel Harvey...............................................           41,999(11)             *
Charles Stryker, Ph.D.......................................           31,250(12)             *
  14 Campus Blvd., Suite 200
  Newtown Square, PA 19073
All executive officers and directors as a group (9
  persons)..................................................        8,118,657(13)         48.19%
</TABLE>

---------------
  *  Less than 1% of the Company's outstanding shares.

 (1) Unless otherwise provided, such person's address is c/o the Company, One
     Blue Hill Plaza, Pearl River, New York 10965.

 (2) The number of shares of Common Stock beneficially owned by each person or
     entity is determined under the rules promulgated by the Securities and
     Exchange Commission (the "Commission"). Under such rules, beneficial
     ownership includes any shares as to which the person or entity has sole or
     shared voting power or investment power. The percentage of the Company's
     outstanding shares is calculated by including among the shares owned by
     such person any shares which such person or entity has the right to acquire
     within 60 days after February 23, 2001. The inclusion herein of any shares
     deemed beneficially owned does not constitute an admission of beneficial
     ownership of such shares.

 (3) Includes 237,245 shares of Common Stock issuable upon the exercise of
     options held by Mr. Greenwald.

 (4) Includes 237,245 shares of Common Stock issuable upon the exercise of
     options held by Mr. Schwartz.

 (5) Includes 205,010 shares of Common Stock issuable upon the exercise of
     options held by Mr. Stollman.

 (6) Includes (i) 831,500 shares of Common Stock owned by a profit sharing plan
     of which Mr. Silver is a Trustee; (ii) 155,100 shares of Common Stock owned
     by a limited liability company of which Mr. Silver is the President; (iii)
     148,000 shares of Common Stock owned by a pension plan of which Mr. Silver
     is a Trustee; and (iv) 31,250 shares of Common Stock issuable upon the
     exercise of options held by Mr. Silver.

                                        31
<PAGE>   33

 (7) Represents shares of Common Stock issuable upon the exercise of options
     held by Mr. Levy.

 (8) Includes 88,750 shares of Common Stock issuable upon the exercise of
     options held by Mr. Skala.

 (9) Represents shares of Common Stock issuable upon the exercise of options
     held by Mr. Burstein.

(10) Represents shares of Common Stock issuable upon the exercise of an option
     held by Mr. Gillon.

(11) Represents shares of Common Stock issuable upon the exercise of options
     held by Mr. Harvey.

(12) Represents shares of Common Stock issuable upon the exercise of options
     held by Dr. Stryker.

(13) Includes 1,132,415 shares of Common Stock issuable upon the exercise of
     options held by the executive officers and directors of the Company. See
     footnotes (3) through (12), above.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     On December 22, 2000, the Company and Jay Greenwald, the Company's then
President and Chief Operating Officer, entered into a Letter Agreement, pursuant
to which Mr. Greenwald resigned effective January 1, 2001 as an executive
officer and employee of the Company. Mr. Greenwald remains a member of the
Company's Board of Directors. The Letter Agreement provided that (i) in
recognition of Mr. Greenwald's service to the Company, he received a one time
severance payment of $115,385; and (ii) Mr. Greenwald will continue to provide
consulting services to the Company through November 30, 2001, for no less than
six days per month, pursuant to which he will be paid $10,000 per month, all as
to be more specifically set forth in a final written Consulting Agreement to be
negotiated between the Company and Mr. Greenwald at a later date.

     Murray L. Skala, a director of the Company, is a partner in the law firm of
Feder, Kaszovitz, Isaacson, Weber, Skala & Bass LLP, the Company's attorneys
("Feder Kaszovitz"). The Company incurred charges of approximately $630,000
during the fiscal year ended November 30, 2000. Feder Kaszovitz continues to
provide services to the Company during its current fiscal year. Its fees are
based primarily on hourly rates. The Company believes that its relationship with
such firm is on terms no less favorable to the Company than could have been
obtained from unaffiliated third parties.

     Charles W. Stryker, Ph.D., a director of the Company, is also Chairman, CEO
and a stockholder of Naviant Marketing Solutions, Inc. ("Naviant"). The Company
and Naviant have entered into a series of Database Licensing Agreements pursuant
to which the Company and Naviant have agreed to share certain consumer data for
marketing purposes and such parties will compensate the other for certain
revenues generated as a result of the use of such shared data. During the fiscal
year ended November 30, 2000, the Company paid Naviant an aggregate of $700,000
under this relationship. The Company believes that its relationship with Naviant
is on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties.

                                        32
<PAGE>   34

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.

  (i) Financial Statements:

     See Index to Financial Statements.

  (ii) Financial Statement Schedules

     Schedule of Valuation and Qualifying Accounts and Reserves

     All other financial statement schedules have been omitted since either (i)
the schedule or condition requiring a schedule is not applicable or (ii) the
information required by such schedule is contained in the Consolidated Financial
Statements and Notes thereto or in Management's Discussion and Analysis of
Financial Condition and Results of Operation.

     (b) REPORTS ON FORM 8-K.

     The Company filed no Current Reports on Form 8-K during the fourth quarter
of the fiscal year ended November 30, 2000.

     (c) EXHIBITS.

<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER
---------
<S>         <C>
 3.1.1      Articles of Incorporation of the Company, as amended.(1)
 3.1.2      Amendment to the Articles of Incorporation of the
            Company.(2)
 3.2        Bylaws of the Company.(3)
10.1        Third Amended and Restated 1996 Stock Option Plan.(4)
10.2        Lease of the Company's offices at One Blue Hill Plaza, Pearl
            River, New York.(5)
10.3        Letter Agreement, dated as of December 22, 2000, by and
            between the Company and Jay Greenwald.(6)
10.4+       Billing and Collection Services Agreement between Federal
            Transtel, Inc. and the Company.(7)(P)
10.5.1      Agreement regarding 900 Pay-Per-Call Psychic Services
            between the Company and Access Resource Services, Inc.(7)
10.5.2      Amendment No. 1 to Exhibit 10.5.1.(7)
10.6.1      Amendment No. 1 to Non-Competition and Right of First
            Refusal Agreement between the Company and Steven L.
            Feder.(7)
10.6.2+     Amendment No. 1 to Non-Competition and Right of First
            Refusal Agreement between the Company and Peter Stolz.(7)
10.6.3+     Amendment No. 1 to Non-Competition and Right of First
            Refusal Agreement between the Company and Thomas H.
            Lindsey.(7)
10.7.1      Redemption Agreement among the Company, Steven L. Feder and
            Defer Limited Partnership.(7)
10.7.2+     Redemption Agreement among the Company, Peter Stolz and the
            P. Stolz Family Limited Partnership, L.P.(7)
10.7.3+     Redemption Agreement among the Company, Thomas H. Lindsey
            and Maslin Limited Partnership.(7)
</TABLE>

                                        33
<PAGE>   35

<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER
---------
<S>         <C>
10.8+       Indemnification Agreement among the Company, Access Resource
            Services, Inc., Steven L. Feder, Peter Stolz, Thomas H.
            Lindsey, Defer Limited Partnership, the P. Stolz Family
            Limited Partnership, L.P. and Maslin Limited Partnership.(7)
10.9        Security Agreement between the Company and Access Resource
            Services, Inc.(7)
10.10.1*+   February 1, 2001 Mutual Database License and Marketing
            Agreement between the Company and Naviant Marketing
            Solutions, Inc.
10.10.2*+   June 20, 2000 Database License Agreement between the Company
            and Naviant Marketing Solutions, Inc.
10.10.3*+   March 30, 2000 Database License Agreement between the
            Company and Naviant Marketing Solutions, Inc.
21*         Subsidiaries of the Company
27*         Financial Data Schedule
</TABLE>

---------------
 *  Filed herewith.

 +  Confidential treatment requested as to portions of this Exhibit.

 (1) Filed as an Exhibit to the Company's Registration Statement on Form 8-A
     dated October 23, 1995 and incorporated herein by reference.

 (2) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the
     fiscal quarter ended August 31, 1998 and incorporated herein by reference.

 (3) Filed as an Exhibit to the Company's Registration Statement on Form S-1
     dated September 6, 1995 (File No. 33-96632) and incorporated herein by
     reference.

 (4) Filed as an Exhibit to the Company's Proxy Statement filed with the
     Commission, dated August 16, 2000 and incorporated herein by reference.

 (5) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
     fiscal year ended November 30, 1996 and incorporated herein by reference.

 (6) Filed as an Exhibit to the Company's Current Report on Form 8-K dated
     December 26, 2000 and incorporated herein by reference.

 (7) Filed as an Exhibit to the Company's Current Report on Form 8-K filed with
     the Commission on June 4, 1999 and incorporated herein by reference.

(P) Filed by paper with the Commission pursuant to a continuing hardship
    exemption.

                                        34
<PAGE>   36

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.

                                          Traffix, Inc.

                                          By: /s/  JEFFREY L. SCHWARTZ
                                            ------------------------------------
                                                    Jeffrey L. Schwartz
                                                Chairman, President and CEO

Dated: March 5, 2001

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                     SIGNATURE                                    TITLE                     DATE
                     ---------                                    -----                     ----
<C>                                                  <S>                              <C>

              /s/ JEFFREY L. SCHWARTZ                Chairman, President and Chief    March 5, 2001
---------------------------------------------------    Executive Officer (Principal
                Jeffrey L. Schwartz                    Executive Officer)

                 /s/ DANIEL HARVEY                   Chief Financial Officer          March 5, 2001
---------------------------------------------------    (Principal Financial and
                   Daniel Harvey                       Accounting Officer)

                /s/ ANDREW STOLLMAN                  Chief Operating Officer,         March 5, 2001
---------------------------------------------------    Secretary and Director
                  Andrew Stollman

                 /s/ JAY GREENWALD                   Director                         March 5, 2001
---------------------------------------------------
                   Jay Greenwald

                /s/ MURRAY L. SKALA                  Director                         March 5, 2001
---------------------------------------------------
                  Murray L. Skala

                 /s/ EDWIN A. LEVY                   Director                         March 5, 2001
---------------------------------------------------
                   Edwin A. Levy

               /s/ LAWRENCE BURSTEIN                 Director                         March 5, 2001
---------------------------------------------------
                 Lawrence Burstein

                  /s/ JACK SILVER                    Director                         March 5, 2001
---------------------------------------------------
                    Jack Silver
</TABLE>

                                        35
<PAGE>   37

                         TRAFFIX, INC. AND SUBSIDIARIES

                       CONSOLIDATED FINANCIAL STATEMENTS
        AS OF NOVEMBER 30, 2000 AND 1999 AND FOR EACH OF THE THREE YEARS
                     IN THE PERIOD ENDED NOVEMBER 30, 2000
<PAGE>   38

                         TRAFFIX, INC. AND SUBSIDIARIES

                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
                          FINANCIAL STATEMENT SCHEDULE

<TABLE>
<CAPTION>
                                                                 PAGE
                                                                 ----
<S>                                                           <C>
Report of Independent Accountants...........................     F-1
Consolidated Balance Sheets as of November 30, 2000 and
  1999......................................................     F-2
Consolidated Statements of Operations for the years ended
  November 30, 2000, 1999 and 1998..........................     F-3
Consolidated Statements of Shareholders' Equity for the
  years ended November 30, 2000, 1999 and 1998..............     F-4
Consolidated Statements of Cash Flows for the years ended
  November 30, 2000, 1999 and 1998..........................     F-5
Notes to Consolidated Financial Statements..................  F-6 - F-23
Schedule II -- Valuation and Qualifying Accounts and
  Reserves..................................................     S-1
</TABLE>
<PAGE>   39

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
Traffix, Inc.:

     In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Traffix, Inc. (formerly known as "Quintel Communications, Inc.") and
its Subsidiaries (the "Company") at November 30, 2000 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended November 30, 2000 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

PRICEWATERHOUSECOOPERS LLP

Melville, New York
February 23, 2001

                                       F-1
<PAGE>   40

                         TRAFFIX, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                        AS OF NOVEMBER 30, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                 2000           1999
                                                              -----------    -----------
<S>                                                           <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................  $ 4,551,344    $ 7,939,567
  Marketable securities.....................................   38,676,890     36,511,925
  Accounts receivable, trade, net of allowance for doubtful
     accounts of $795,024 in 2000 and $-0- in 1999..........    4,354,588      5,711,967
  Deferred income taxes.....................................    2,095,026      2,778,329
  Due from related parties..................................      467,877        550,112
  Prepaid expenses and other current assets.................    1,508,547        688,314
                                                              -----------    -----------
          Total current assets..............................   51,654,272     54,180,214
Property and equipment, at cost, net of accumulated
  depreciation..............................................      512,958        816,533
Long-term investments, at cost..............................      565,051      2,097,500
Deferred income taxes.......................................       71,778        183,032
                                                              -----------    -----------
          Total assets......................................  $52,804,059    $57,277,279
                                                              ===========    ===========
LIABILITIES
Current liabilities:
  Accounts payable..........................................  $ 2,091,331    $ 1,793,631
  Accrued expenses..........................................    3,218,262      5,548,876
  Reserve for customer chargebacks..........................    1,225,040      4,618,108
  Due to related parties....................................    1,446,619        368,176
  Income taxes payable......................................    3,434,995      4,365,104
  Deferred income taxes.....................................       59,252        697,106
                                                              -----------    -----------
          Total current liabilities.........................   11,475,499     17,391,001
                                                              -----------    -----------
Commitments and contingencies (Note 7 and 9)

SHAREHOLDERS' EQUITY
Preferred stock -- $.001 par value; 1,000,000 shares
  authorized; none issued and outstanding
Common stock -- $.001 par value; authorized 50,000,000
  shares; issued and outstanding 15,681,116 shares and
  15,469,590 shares, respectively...........................       15,680         15,469
Additional paid-in capital..................................   39,208,992     37,482,479
Retained earnings...........................................    8,691,438      3,544,568
Accumulated other comprehensive (loss) income...............   (4,385,650)     1,045,662
Common stock held in treasury, at cost, 942,853 shares......   (2,201,900)    (2,201,900)
                                                              -----------    -----------
          Total shareholders' equity........................  41,328,560..    39,886,278
                                                              ===========    ===========
          Total liabilities and shareholders' equity........  $52,804,059    $57,277,279
                                                              ===========    ===========
</TABLE>

          See accompanying notes to consolidated financial statements
                                       F-2
<PAGE>   41

                         TRAFFIX, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED NOVEMBER 30, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                                        2000           1999            1998
                                                     -----------    -----------    ------------
<S>                                                  <C>            <C>            <C>
Net revenue........................................  $26,093,960    $42,839,840    $ 94,690,251
Cost of sales......................................    9,470,275     26,952,097      80,037,115
                                                     -----------    -----------    ------------
     Gross profit..................................   16,623,685     15,887,743      14,653,136
Selling, general and administrative expenses.......   11,149,392     10,881,156      14,356,892
Special charges....................................           --             --      19,692,543
                                                     -----------    -----------    ------------
     Income (loss) from operations.................    5,474,293      5,006,587     (19,396,299)
Other income (expense):
  Interest expense.................................     (286,655)       (70,701)       (186,218)
  Interest income and dividends....................    2,646,622      1,390,829       1,895,563
  Net gains (losses) on sale of marketable
     securities....................................      863,384       (494,351)        124,822
  Long-lived asset impairment charges..............   (2,139,315)            --              --
  Loss on disposal of fixed assets.................           --       (157,553)             --
  Gain on non-monetary cost basis exchange.........      565,572             --              --
  Other non-operating income.......................    1,354,723        707,569         192,050
  Minority interest................................      140,000             --              --
                                                     -----------    -----------    ------------
     Income (loss) before provision for income
       taxes.......................................    8,618,624      6,382,380     (17,370,082)
Provision (benefit) for income taxes...............    3,471,754      2,458,520        (417,464)
                                                     -----------    -----------    ------------
     Net income (loss).............................  $ 5,146,870    $ 3,923,860    $(16,952,618)
                                                     ===========    ===========    ============
Basic income (loss) per share:
  Net income (loss)................................  $      0.35    $      0.26    $      (1.00)
                                                     -----------    -----------    ------------
  Weighted average shares outstanding..............   14,792,734     15,119,610      17,034,531
                                                     ===========    ===========    ============
Diluted income (loss) per share:
  Net income (loss)................................  $      0.33    $      0.26    $      (1.00)
                                                     -----------    -----------    ------------
  Weighted average shares outstanding..............   15,494,663     15,241,662      17,034,531
                                                     ===========    ===========    ============
</TABLE>

          See accompanying notes to consolidated financial statements
                                       F-3
<PAGE>   42

                         TRAFFIX, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED NOVEMBER 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>

                                             COMMON STOCK           ADDITIONAL     RETAINED          TREASURY STOCK
                                      --------------------------     PAID-IN       EARNINGS     ------------------------
                                        SHARES        AMOUNTS        CAPITAL       (DEFICIT)      SHARES       AMOUNT
                                      -----------   ------------   ------------   -----------   ----------   -----------
<S>                                   <C>           <C>            <C>            <C>           <C>          <C>
BALANCE, NOVEMBER 30, 1997..........   18,649,347   $     18,649   $ 39,027,700   $24,663,931
Unrealized (losses) on
  available-for-sale securities.....
Purchase of common stock, held in
  treasury, at cost.................    2,742,667                                                            $(10,065,030)
Retirement of stock held in
  treasury..........................   (1,969,601)        (1,970)       (72,425)   (8,090,605)  (1,969,601)    8,165,000
Net (loss) for the year.............                                              (16,952,618)
                                      -----------   ------------   ------------   -----------   ----------   -----------
BALANCE, NOVEMBER 30, 1998..........   16,679,746         16,679     38,955,275      (379,292)     773,066    (1,900,030)
Unrealized gains on
  available-for-sale securities.....
Stock option exercises..............       89,844             90        157,137
Tax benefit from exercise of stock
  options...........................                                    123,767
Purchase of common stock, held in
  treasury, at cost.................                                                               169,787      (301,870)
Purchase and retirement of common
  stock.............................   (1,300,000)        (1,300)    (1,753,700)
Net income for the year.............                                                3,923,860
                                      -----------   ------------   ------------   -----------   ----------   -----------
BALANCE, NOVEMBER 30, 1999..........   15,469,590         15,469     37,482,479     3,544,568      942,853    (2,201,900)
Unrealized (losses) on
  available-for-sale securities.....
Stock option exercises..............      211,526            211        408,479
Tax benefit from exercise of stock
  options...........................                                    448,880
Common stock issued in connection
  with long-term investment.........      229,862            230      1,615,976
Purchase and retirement of common
  stock.............................     (229,862)          (230)      (746,822)
Net income for the year.............                                                5,146,870
                                      -----------   ------------   ------------   -----------   ----------   -----------
BALANCE, NOVEMBER 30, 2000..........   15,681,116   $     15,680   $ 39,208,992   $ 8,691,438      942,853   $(2,201,900)
                                      ===========   ============   ============   ===========   ==========   ===========

<CAPTION>
                                       ACCUMULATED
                                          OTHER           TOTAL
                                      COMPREHENSIVE   SHAREHOLDERS'
                                      (LOSS) INCOME      EQUITY
                                      -------------   -------------
<S>                                   <C>             <C>
BALANCE, NOVEMBER 30, 1997..........   $    (3,983)   $ 63,706,297
Unrealized (losses) on
  available-for-sale securities.....        (6,505)         (6,505)
Purchase of common stock, held in
  treasury, at cost.................                   (10,065,030)
Retirement of stock held in
  treasury..........................
Net (loss) for the year.............                   (16,952,618)
                                       -----------    ------------
BALANCE, NOVEMBER 30, 1998..........       (10,488)     36,682,144
Unrealized gains on
  available-for-sale securities.....     1,056,150       1,056,150
Stock option exercises..............                       157,227
Tax benefit from exercise of stock
  options...........................                       123,767
Purchase of common stock, held in
  treasury, at cost.................                      (301,870)
Purchase and retirement of common
  stock.............................                    (1,755,000)
Net income for the year.............                     3,923,860
                                       -----------    ------------
BALANCE, NOVEMBER 30, 1999..........     1,045,662      39,886,278
Unrealized (losses) on
  available-for-sale securities.....    (5,431,312)     (5,431,312)
Stock option exercises..............                       408,690
Tax benefit from exercise of stock
  options...........................                       448,880
Common stock issued in connection
  with long-term investment.........                     1,616,206
Purchase and retirement of common
  stock.............................                      (747,052)
Net income for the year.............                     5,146,870
                                       -----------    ------------
BALANCE, NOVEMBER 30, 2000..........   $(4,385,650)   $ 41,328,560
                                       ===========    ============
</TABLE>

          See accompanying notes to consolidated financial statements
                                       F-4
<PAGE>   43

                         TRAFFIX, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED NOVEMBER 30, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                                             2000            1999            1998
                                                         -------------   -------------   ------------
<S>                                                      <C>             <C>             <C>
Cash flows from operating activities:
  Net income (loss)....................................  $   5,146,870   $   3,923,860   $(16,952,618)
  Adjustments to reconcile net income (loss) to net
     cash provided by (used in) operating activities:
     Depreciation and amortization.....................        263,669         249,073      1,284,039
     Reserve for customer chargebacks..................     (3,393,068)    (10,876,030)   (22,701,976)
     Provision for uncollectible accounts..............        795,024              --             --
     Deferred income taxes.............................        653,809       9,037,569     (2,471,838)
     Net (gains) losses on sale of marketable
       securities......................................       (863,384)        494,351       (124,822)
     Discounts and premiums on marketable securities...       (330,843)             --             --
     Loss on disposal of fixed assets..................             --         255,783             --
     Gain on non-monetary cost basis exchange..........       (565,572)             --             --
     Long-lived asset impairment charges...............      2,139,315              --     19,692,543
     Equity in net losses of joint ventures............         11,952              --             --
     Minority interest.................................       (140,000)             --             --
     Changes in assets and liabilities of business:
       Accounts receivable.............................        562,355      25,518,612     15,080,381
       Due from related parties........................        121,283         203,977       (516,604)
       Prepaid expenses and other current assets.......       (820,233)      1,462,956      1,729,104
       Accounts payable................................        297,700      (2,660,032)      (200,199)
       Income taxes payable............................       (281,229)      3,743,674        745,197
       Accrued expenses................................     (2,330,614)     (1,404,453)    (1,059,062)
       Due to related parties..........................      1,078,443         227,420       (838,649)
                                                         -------------   -------------   ------------
          NET CASH PROVIDED BY (USED IN) OPERATING
            ACTIVITIES.................................      2,345,477      30,176,760     (6,334,504)
                                                         -------------   -------------   ------------

Cash flows from investing activities:
  Purchases of securities..............................   (333,623,263)   (149,802,510)   (72,275,879)
  Proceeds from sales of securities....................    329,205,886     129,560,235     82,101,333
  Capital expenditures.................................       (225,410)       (436,296)    (1,366,007)
  Purchases of long-term investments, net..............       (892,551)     (2,097,500)            --
  Proceeds from the disposal of fixed assets...........             --         258,808             --
                                                         -------------   -------------   ------------
          NET CASH (USED IN) PROVIDED BY INVESTING
            ACTIVITIES.................................     (5,535,338)    (22,517,263)     8,459,447
                                                         -------------   -------------   ------------

Cash flows from financing activities:
  Proceeds from stock options exercised................        408,690         213,310             --
  Proceeds from minority interest......................        140,000              --             --
  Purchase of common stock.............................       (747,052)     (2,056,870)   (10,065,030)
                                                         -------------   -------------   ------------
          NET CASH USED IN FINANCING ACTIVITIES........       (198,362)     (1,843,560)   (10,065,030)
                                                         -------------   -------------   ------------
Net (decrease) increase in cash and cash equivalents...     (3,388,223)      5,815,937     (7,940,087)
Cash and cash equivalents, beginning of year...........      7,939,567       2,123,630     10,063,717
                                                         -------------   -------------   ------------
CASH AND CASH EQUIVALENTS, END OF YEAR.................  $   4,551,344   $   7,939,567   $  2,123,630
                                                         =============   =============   ============

Supplemental disclosures:
  Cash paid during the year for:
     Interest..........................................  $          --   $      70,701   $    186,218
     Income tax (refunds)..............................      3,065,105     (11,675,498)       910,000
Noncash investing activities:
</TABLE>

During the fiscal year ended November 30, 2000, the Company issued 229,862
shares of its common stock, valued at $ 1,616,206, in the purchase of a
long-term investment (See note 5).

          See accompanying notes to consolidated financial statements
                                       F-5
<PAGE>   44

                         TRAFFIX, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

  Nature of Business

     Traffix, Inc. and its consolidated subsidiaries (collectively, "Traffix" or
the "Company", formerly known as Quintel Communications, Inc.) provide consumer
targeted direct marketing and customer acquisition services for business. The
Company utilizes its proprietary and affiliate on-line databases to generate
revenue from such direct marketing activities, via the Internet. Traffix
supplements these on-line revenues with traditional off-line marketing to its
off-line database. The Company's on-line databases grow through on-line
marketing and data acquisition programs, and the off-line databases also grow as
a by-product thereof. The Company's direct marketing activities are divided into
three principle operating segments: a) E-commerce, b) Off-line Customer
Acquisition services, and c) LEC Billed products and services. The Company
changed its name to Traffix, Inc., effective October 2, 2000, pursuant to
shareholder approval received on September 12, 2000. This name change was made
to better reflect the Company's business of generating and directing consumer
traffic for businesses, both on-line and off-line. The Company's main focus and
business strategy is to create compelling content as marketing vehicles that
generate revenue for its corporate advertisers and marketing affiliates who seek
access to the Company's on-line and off-line databases. Prior to December 1,
1999, the Company had relied exclusively on conventional ("off-line") marketing
channels, specifically television broadcast media, telemarketing, direct-mail,
and print advertising to facilitate its consumer targeted direct marketing
activities.

  Principles of Consolidation and Presentation

     The consolidated financial statements of the Company include the accounts
of its wholly-owned and majority owned subsidiaries. Any losses allocated to
minority interests are limited to contributed minority interest capital. The
Company's other investments (classified in the "Long-term investments, at cost"
financial caption, See Note 5) that are accounted for under the equity method,
are immaterial, with the majority of its investments valued under the cost
method of accounting. Such cost method investments represent ownership interests
of less than 20%, with the absence of control and significant influence over
such investments. All significant inter-company accounts and transactions have
been eliminated in consolidation. Certain amounts for prior periods have been
reclassified to conform to current year presentations.

  Revenue recognition

     The Company currently earns the most significant portion of revenue from
its E-commerce segment pursuant to marketing sale agreements with corporate
partners and corporate customers. The provisions of each agreement determine the
type and timing of revenue to be recorded, which fall into four basic
categories: (1) registration revenue generated from the delivery of qualified
registrants to corporate advertisers and marketing partners, (2) "click" revenue
for the delivery of "on-line traffic" to the corporate advertisers and marketing
partners websites, (3) fees paid by service businesses for the delivery of
qualified customers obtained through the Company's on-line based marketing
programs and, (4) transmission of permission based opt-in e-mail advertisements
to the Company's on-line database population. The Company invoices its customers
in accordance with the terms of the underlying agreement, and the related
marketing activity delivered and/or marketing service provided. Revenue is
recognized at the time the marketing activity is delivered, or service is
provided (normally, either daily or weekly), net of estimated contractually
specified data qualification allowances, when applicable. Such data
qualification allowances provide for delivered registrants who may be
pre-existing in the partner's database, undeliverable emails and other. In
accordance with newly developing revenue recognition pronouncements,
specifically Staff Accounting Bulletin 101, "Revenue Recognition in Financial
Statements" ("SAB 101") issued in December 1999, and in accordance with the
Company's historical accounting policies and reporting practices, the Company
records all related obligations associated with the related net revenue at its
point of recognition. These obligations include costs

                                       F-6
<PAGE>   45
                         TRAFFIX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

payable to other on-line, as well as off-line, advertisers for registered user
acquisitions, fee sharing costs under partner agreements, e-mail message
delivery costs, contingent based prize insurance coverage (for potential free
on-line lottery winners) and all other variable direct costs associated with
completing the Company's obligations relative to the revenue recognized. Such
revenue recognition is also subject to provisions based on the probability of
collection. In cases where the Company receives advances prior to fulfilling its
obligations relative thereon, such revenue is deferred. At November 30, 2000,
the Company's accrued expenses included approximately $692,000 of deferred
revenue; at November 30, 1999 deferred revenue included in accrued expenses was
$-0-. With respect to capitalized marketing costs, the Company's policy is to
expense, as a cost of sale, customer acquisition costs, and all other marketing
costs, at the time the obligation or expense is incurred.

     The Company's off-line customer acquisition services, which historically
consisted of residential long distance customer acquisition programs, are
recorded upon the achievement of certain events particular to the corresponding
program's fulfillment liability. Subsequent to the delivery of the initial sales
record to the respective long distance carrier, the Company may be required to
provide to the customer certain products and services (fulfillment liability),
such as prepaid cellular telephones and/or other suitable premiums. These costs
are estimated and accrued, as a component of marketing expense, at the time the
associated revenues are recognized. At November 30, 2000 and 1999, accrued
expenses included approximately $746,000 and $3.3 million of such costs,
respectively. This estimation is adjusted to actual amounts in subsequent
periods. During the year ended November 30, 2000, the Company recorded
approximately $2,428,000 as reductions of cost of revenues related to expired
fulfillment obligations. During the fiscal years ended November 30, 1999 and
November 30, 1998, similar adjustments, if any, were immaterial in amount.

     Revenue from the Company's LEC Billed products and services segment, (the
marketing of such services ceased in November 1998), consists of various
enhanced telephone services, principally voice mail services and were
recognized, net of an estimated provision for customer chargebacks (which
included refunds and credits). Since the provision for customer chargebacks was
established prior to the periods in which chargebacks are actually expended, the
Company's revenues are adjusted in later periods when the Company's incurred
chargebacks vary from the amounts previously estimated. Due to the fact that a
significant portion of these previously offered LEC segment services have
reached their contractual settlement phase, it was determined that certain
chargeback reserves were no longer necessary, and approximately $1,826,000 was
credited to income for the year ended November 30, 2000. During the fiscal years
ended November 30, 1999 and November 30, 1998, similar adjustments, if any, were
immaterial in amount.

  Concentration of credit risk

     Financial instruments that potentially subject the Company to concentration
of credit risk have historically consisted of cash and cash equivalents,
marketable securities and accounts receivable. Currently the Company invests the
majority of its excess cash in high grade commercial paper, with maturities of
less than nine months, and therefore has significantly reduced its future
exposure to market risk.

     Consistent with the above, the Company has historically invested a portion
of its excess cash in debt instruments and has maintained guidelines relative to
diversification yielding safety and liquidity. The bulk of these funds
(approximately $35 million) which are professionally managed by a major
investment bank pursuant to guidelines established by the Company's Board of
Directors.

     During the years ended November 30, 2000 and 1999, the Company had invested
approximately $1.9 and $3.9 million, respectively, at cost, in equity based
marketable securities, with a significant concentration in the Internet
industry. Such investments were made pursuant to the potentially significant
synergistic benefits to the Company's operations resulting from associated
marketing agreements executed at the time of the, Internet industry based,
equity security acquisitions. At November 30, 2000, the Company's equity based
marketable securities, classified as available-for-sale securities, accounted
for approximately $1.3 million, or
                                       F-7
<PAGE>   46
                         TRAFFIX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

approximately 3.5% of the market value of the Company's total marketable
securities. At November 30, 2000, the related cost basis of these securities
amounted to approximately $5.6 million (See Note 3).

     The collections from the Company's legacy telecommunication product and
service revenues, billed through the LEC Billed products and services segment,
are received through three unrelated, unaffiliated service bureaus. In
conjunction with servicing the accounts receivable, the service bureaus remit
amounts based on eligible accounts receivable, and withhold certain cash
receipts as a reserve. As a result, the Company's exposure to the concentration
of credit risk is primarily related to funds held on behalf of the Company by
these service bureaus.

     Cash and cash equivalent balances are principally held at four financial
institutions and may, at times, exceed insurable amounts. The Company believes
it mitigates its risks by investing in or through major financial institutions.
Recoverability is dependent upon the performance of the institutions.

  Transactions With Major Customers

     During the fiscal year ended November 30, 2000, the Company derived
approximately 53% of its revenues from two major customers. In the prior years
ended November 30, 1999 and 1998, the Company had derived approximately 72% and
20%, respectively, of its revenue from one major customer. As at November 30,
2000, the Company has either terminated, or has been terminated, from providing
services to such major customers. Accounts receivable from these major customers
were approximately $611,000 and $1,020,000 at November 30, 2000 and 1999,
respectively.

  Cash and cash equivalents

     All short-term investments with an original maturity of three months or
less are considered to be cash equivalents.

  Marketable securities

     The Company's marketable securities consist of corporate commercial paper,
auction rate securities, equity securities and real estate investment trusts
("REITs"), all of which are held for varying and indefinite periods of time,
pursuant to maturity dates, market conditions and other factors. It is the
Company's intent to maintain a liquid portfolio to take advantage of investment
opportunities; therefore, all marketable securities are considered to be
available-for-sale and are classified as current assets. Accordingly, such
securities are stated at fair value, with unrealized gains and losses, net of
estimated tax effects, included in other comprehensive (loss) income as a
separate component of shareholders' equity, until realized. At November 30,
2000, the Company had approximately $4.4 million in accumulated unrealized
losses, and due to the absence of other appreciated capital gain property, a
full valuation allowance was taken against the estimated deferred tax asset.
This deferred tax asset valuation allowance, taken at November 30, 2000,
amounted to approximately $1.8 million. Realized gains and losses on such
marketable securities are included in the statement of operations, as a
component of "Other income (expense)" and are derived using the specific
identification method for determining the cost of securities.

  Property and equipment

     Property and equipment are stated at cost and are depreciated using the
straight-line method over a five to seven year useful life depending on the
nature of the asset. Leasehold improvements are amortized over the life of the
improvement or the term of the lease, whichever is shorter. Expenditures for
maintenance and repairs are expensed as incurred while renewals and betterments
are capitalized.

                                       F-8
<PAGE>   47
                         TRAFFIX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Upon retirement or disposal, the asset cost and related accumulated
depreciation and amortization are eliminated from the respective accounts and
the resulting gain or loss, if any, is included in the results of operations for
the period.

  Long-lived assets

     If events or changes in circumstances indicate that the carrying amount of
a long-lived asset may not be recoverable, the Company estimates: (a) the future
cash flows expected to result from the use of such asset over its remaining
useful life and (b) the potential cash flows realizable from its possible
disposition. If the sum of the expected future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the long-lived
asset, an impairment loss is measured as a difference between carrying amount
and the future discounted cash flows (See Notes 4, 5 and 10).

  Income taxes

     The Company recognizes deferred tax assets and liabilities based on the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax basis
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. Valuation allowances are provided
against assets which are not likely to be realized (see Note 6).

  Advertising and marketing expenses

     The Company's advertising and marketing costs have historically consisted
of television broadcast media and related production costs, telemarketing,
direct-mail and print media, with all such costs being charged to operations at
the time the related advertising and marketing occurred. Total advertising and
marketing expenses by segment for fiscal 2000, 1999 and 1998 were as follows:

<TABLE>
<CAPTION>
                                                CONSOLIDATED ADVERTISING AND MARKETING COSTS
                                                          YEAR ENDED NOVEMBER 30,
                                               ----------------------------------------------
                                                   2000            1999             1998
                                               ------------    -------------    -------------
<S>                                            <C>             <C>              <C>
E-commerce...................................   $4,821,540      $     2,084      $        --
Off-line Customer Acquisition services.......    2,721,517       19,534,539       22,081,230
LEC Billed products and services.............      136,485          402,492       24,732,314
Corporate and other..........................           --           32,050          277,924
                                                ----------      -----------      -----------
          Consolidated totals................   $7,679,542      $19,971,165      $47,091,468
                                                ==========      ===========      ===========
</TABLE>

                                       F-9
<PAGE>   48
                         TRAFFIX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Comprehensive (Loss) Income

     The Company presents unrealized gains and losses on its marketable
securities as a component of "Comprehensive (loss) income" and are presented
below:

<TABLE>
<CAPTION>
                                                       YEAR ENDED NOVEMBER 30,
                                              -----------------------------------------
                                                 2000           1999           1998
                                              -----------    ----------    ------------
<S>                                           <C>            <C>           <C>
Net income (loss)...........................  $ 5,146,870    $3,923,860    $(16,952,618)
Other comprehensive (loss) income, net of
  tax:
  Unrealized (loss) gain from
     available-for-sale securities net of
     income taxes of $-0- for 2000, $704,100
     for 1999 and ($4,337) for 1998.........   (5,431,312)    1,056,150          (6,505)
                                              -----------    ----------    ------------
          Comprehensive (loss) income.......  $  (284,442)   $4,980,010    $(16,959,123)
                                              ===========    ==========    ============
</TABLE>

  Segment Information

     Segments are defined as components of an enterprise for which separate
financial information is available that is evaluated regularly by the chief
operating decision maker(s) in deciding how to allocate resources and in
assessing performance. Disclosure is also required about products and services,
geographic areas and major customers. The Company's three principle operating
segments are: a) E-commerce, b) Off-line Customer Acquisition services, and c)
LEC Billed products and services, with the related segment disclosure
information presented in Note 13.

  Estimates

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires the
Company's management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates. The Company's most significant estimates relate to the
reserve for customer chargebacks, recoverability of long-lived assets, the
realizability of deferred tax assets, fulfillment accruals for customer
acquisition costs and valuations relative to long-term investments in privately
held companies whose market values are not readily determinable.

2. RELATED PARTY TRANSACTIONS

     In prior fiscal periods, the Company had purchased various mailing lists
and design, copyrighting and artistic development services from related entities
owned by certain of the Company's officers/shareholders. The agreements required
the Company to pay fees equal to 20% of rental revenues and a management fee of
10%, plus any fees in connection with processing and mailing lists. During
fiscal 1998 costs of approximately $10,000 were incurred by the Company for such
services. During fiscal 1998, the related entities were sold, thereby dissolving
the related party relationship as of November 30, 1998.

     The Company incurred approximately $10,000 and $90,800, respectively,
during fiscal 1999 and 1998, in accounting fees to a firm having a member who
was also a director of the Company up until the time of his resignation in
November 1999. In addition, the Company incurred approximately $630,000,
$367,000 and $431,000, respectively, during fiscal 2000, 1999 and 1998, in legal
fees to a firm having a member who is also a director of the Company.

     The Company incurred approximately $125,000 and $227,000 in compensation
expense during the fiscal years ended November 30, 1999 and 1998, respectively,
related to an employment agreement that was

                                       F-10
<PAGE>   49
                         TRAFFIX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

executed in connection with an acquisition consummated in fiscal 1996.
Simultaneous with this acquisition, such principal shareholder was elected as a
director of the Company and served in such capacity until his resignation in
January 1999. This employment agreement was terminated effective June 1, 1999,
commensurate with the Company's termination of its 900 entertainment services
business (See Note 7). The principal shareholder of this acquired entity was
also the principal shareholder of Psychic Readers Network, currently known as
Access Resource Services, Inc. ("ARS"). ARS had previously supplied the Company
with substantially all if its live psychic operators during the periods in which
the Company was most dependent on 900 entertainment services, principally from
inception to May 31, 1998. For the years ended November 30, 1999 and 1998 the
Company paid aggregate fees for these live psychic services of approximately
$1,019,000 and $7,023,000, respectively, under an agreement with ARS, which was
terminated in June of 1999 (See Note 8).

The Company received commissions of approximately $365,000 and $685,000 during
fiscal 1999 and 1998, respectively, from ARS for purchasing television media
time on their behalf. As of November 30, 1998, the Company had a receivable of
$578,000, relating to such commission activity. Effective June 1, 1999, pursuant
to the Company's termination of its 900 entertainment services business, ARS
assumed the responsibility for all media buying personnel, therefore such
revenue ceased at that time and the corresponding receivable was collected (See
Note 8).

     The Company had a consulting agreement with a director/shareholder, which
expired on November 30, 1998. Under the terms of such agreement, the
director/shareholder provided services in connection with identification and
engagement of celebrities to endorse the Company's services, engagement of
independent producers to produce commercials and infomercials and the
development of new entertainment services. The Company incurred approximately
$8,000, $113,000 and $151,000 in expense relating to this agreement in 2000,
1999 and 1998, respectively. Although the consulting agreement has expired, the
director/shareholder continued to provide consulting services to the Company
until the time of his resignation from all company positions in January of 2000.

3. MARKETABLE SECURITIES

     The carrying amount of the Company's marketable securities is shown in the
table below:

<TABLE>
<CAPTION>
                                                       NOVEMBER 30,
                                ----------------------------------------------------------
                                           2000                           1999
                                ---------------------------    ---------------------------
                                   COST        MARKET VALUE       COST        MARKET VALUE
                                -----------    ------------    -----------    ------------
<S>                             <C>            <C>             <C>            <C>
Available-for-sale securities:
  U.S. government
     obligations..............  $        --    $        --     $ 2,542,478    $ 2,540,032
  REITs.......................      940,830        923,163         853,394        726,170
  Corporate commercial
     paper....................   37,449,932     37,331,694      28,373,689     28,370,726
  Equity securities...........    4,671,778        422,033       3,000,000      4,874,997
                                -----------    -----------     -----------    -----------
          Total...............  $43,062,540    $38,676,890     $34,769,561    $36,511,925
                                ===========    ===========     ===========    ===========
</TABLE>

     Marketable securities shown in the above table are carried at historical
cost, net of unamortized discount of $115,068, and stated at fair value; the
cost basis of marketable securities with scheduled maturities within one year
were $37,449,932 and $30,916,167 for fiscal 2000 and fiscal 1999, respectively.

                                       F-11
<PAGE>   50
                         TRAFFIX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Proceeds, realized gains and realized losses from sales of securities
classified as available-for-sale for fiscal year 2000, 1999 and 1998 consisted
of the following:

<TABLE>
<CAPTION>
                                                2000            1999           1998
                                            ------------    ------------    -----------
<S>                                         <C>             <C>             <C>
Proceeds from sales of securities.........  $329,205,886    $129,560,235    $82,101,333
Gross realized gains......................       943,143          64,718        124,822
Gross realized losses.....................       (79,759)       (559,069)            --
</TABLE>

4. PROPERTY AND EQUIPMENT

     Property and equipment for the years ended November 30, 2000 and 1999
consists of the following:

<TABLE>
<CAPTION>
                                                                 2000          1999
                                                              ----------    ----------
<S>                                                           <C>           <C>
Furniture and fixtures......................................  $  173,929    $  173,929
Computers and equipment.....................................   1,051,834     1,091,740
Leasehold improvements......................................      33,113        33,113
                                                              ----------    ----------
                                                               1,258,876     1,298,782
  Less, accumulated depreciation and amortization...........     745,918       482,249
                                                              ----------    ----------
                                                              $  512,958    $  816,533
                                                              ==========    ==========
</TABLE>

     Depreciation and amortization expense for the years ended November 30,
2000, 1999 and 1998 was approximately $264,000, $249,000 and $302,000,
respectively.

     During the year ended November 30, 2000, the Company evaluated certain
capitalized costs associated with internally developed software incurred in
fiscal 1999, which was included with computers and equipment at November 30,
1999. The results of the evaluation revealed that the unamortized software costs
were fully impaired based on their failure to generate revenue, and their
failure to provide cash flow to the Company. During the year ended November
2000, the Company recorded an impairment charge of $265,316 relating to such
internally developed software, and is included as a component of other income
(expense) "Long-lived asset impairment charges".

5. LONG-TERM INVESTMENTS, AT COST

     The Company's Long-term investments, at cost, include investment interests
of less than 20% in private companies without a readily determinable market
value. If circumstances exist that indicate the carrying value of such
investments is less than their recoverable value the Company assesses the need
to record an impairment loss. Key criteria that the Company considers in its
evaluation of potential impairment events include, but are not limited to, the
underlying investment's failure to meet its operating projections, failure of
the investment to raise additional capital or acquire debt financing, failure to
obtain and/or, maintain key employees or acquire, or maintain, a specific market
share, and the failure of the investments to achieve initial short-term goals as
defined in their business plans.

     At November 30, 1999, the Company had invested $2,046,500 of cash into five
private companies, carried under the cost method. As of November 30, 2000, four
of those five private companies have failed to achieve their initial goals, as
set forth in their business plans, and all four of those companies had events
that fell within our impairment evaluation criteria. This portion of the
Company's impairment loss amounted to $1,546,500, and is included as a component
of other income (expense) "Long-lived asset impairment charges".

     The remaining investee, itarget.com, Inc. (which at that time was a
privately held company that specialized in on-line permission based e-mail
marketing and consumer data information services), was an entity in which the
Company had originally invested $500,000 in November 1999. In January 2000,
Traffix

                                       F-12
<PAGE>   51
                         TRAFFIX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

increased its cost based investment position through the issuance of its common
stock pursuant to a stock swap agreement. The agreement required that 229,862 of
the Traffix common shares be issued in exchange for 42,372 newly issued Series
B, convertible preferred shares of itarget.com, Inc. The Traffix share issuance
increased the cost based carrying value of the itarget.com investment by
$1,616,206. On March 29, 2000, itarget.com merged with Cybergold, Inc., (at that
time a public company that traded as Nasdaq:CGLD). Pursuant to the merger, the
Company received Cybergold, Inc. shares in exchange for its itarget.com, Inc.
shares. This merger event caused the previously classified long-term, cost
based, investment to be transferred to the available-for-sale marketable
security classification. The Company recognized a non-monetary, pre-tax, gain of
approximately $566,000 on the new accounting basis of the Cybergold, Inc.
shares, which is included as a component other income (expense). On April 17,
2000 MyPoints.com, Inc. (Nasdaq:MYPT) agreed to acquire Cybergold, Inc. in a
tax-free, stock-for-stock, fixed share transaction. The transaction closed on
August 7, 2000, whereby the Company received approximately 117,000 shares of
MyPoints.com, Inc. in return for its Cybergold, Inc. shares in accordance with
the terms of the merger.

     During the year ended November 30, 2000, the Company expended an additional
$1,060,051 on cost based investments. As at November 30, 2000, the Company has
evaluated the current year's long-term investments and has recorded an
impairment loss of $327,500 against the carrying value of such investments, and
is included as a component of other income (expense) "Long-lived asset
impairment charges".

6. INCOME TAXES

     The provision (benefit) for income taxes consists of the following:

<TABLE>
<CAPTION>
                                                        YEAR ENDED NOVEMBER 30,
                                                ---------------------------------------
                                                   2000          1999          1998
                                                ----------    ----------    -----------
<S>                                             <C>           <C>           <C>
Federal:
  Current.....................................  $2,191,023    $  365,543    $        --
  Deferred....................................     774,953     1,813,018     (2,593,444)
                                                ----------    ----------    -----------
                                                 2,965,976     2,178,561     (2,593,444)
                                                ----------    ----------    -----------
State:
  Current.....................................     426,922       342,367        525,000
  Deferred....................................      78,856       (62,408)     1,650,980
                                                ----------    ----------    -----------
                                                   505,778       279,959      2,175,980
                                                ----------    ----------    -----------
          Total provision.....................  $3,471,754    $2,458,520    $  (417,464)
                                                ==========    ==========    ===========
</TABLE>

     The following is a reconciliation of the income tax expense computed using
the statutory federal income tax rate to the actual income tax expense and its
effective income tax rate:

<TABLE>
<CAPTION>
                                                        YEAR ENDED NOVEMBER 30,
                                                ---------------------------------------
                                                   2000          1999          1998
                                                ----------    ----------    -----------
<S>                                             <C>           <C>           <C>
Income tax expense (benefit) at federal
  statutory rate..............................  $2,930,332    $2,170,008    $(6,079,529)
State income taxes, net of federal income tax
  benefit.....................................     333,813       184,774        341,250
Goodwill amortization.........................          --            --      3,623,519
Change in valuation allowance.................    (200,000)           --      1,679,082
Nondeductible items...........................     407,609       103,738         18,214
                                                ----------    ----------    -----------
                                                $3,471,754    $2,458,520    $  (417,464)
                                                ==========    ==========    ===========
</TABLE>

                                       F-13
<PAGE>   52
                         TRAFFIX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The components of net deferred tax assets are as follows:

<TABLE>
<CAPTION>
                                                                   NOVEMBER 30,
                                                            --------------------------
                                                               2000           1999
                                                            -----------    -----------
<S>                                                         <C>            <C>
Deferred tax assets:
  Current:
     Accrued expenses and reserves not currently
       deductible.........................................  $ 2,063,314    $ 2,514,414
     Unrealized losses on marketable securities...........    1,754,260             --
     Valuation allowance on unrealized losses.............   (1,754,260)            --
     Capital loss carryforward............................       31,712        263,915
                                                            -----------    -----------
          Total current assets............................    2,095,026      2,778,329
                                                            -----------    -----------
  Non-current:
     Fixed assets and intangibles.........................        9,370        120,624
     Net operating loss...................................    1,541,490      1,741,490
     Valuation allowance..................................   (1,479,082)    (1,679,082)
                                                            -----------    -----------
          Total noncurrent assets.........................       71,778        183,032
                                                            -----------    -----------
          Total assets....................................    2,166,804      2,961,361
Deferred tax liabilities:
  Current:
     Other................................................       59,252        697,106
                                                            -----------    -----------
          Net deferred tax assets.........................  $ 2,107,552    $ 2,264,255
                                                            ===========    ===========
</TABLE>

     At November 30, 2000 and 1999, valuation allowances of $1,479,082 and
$1,679,082, respectively were established, primarily for state tax net operating
losses, which can not be carried back by statute, and have reduced the deferred
tax assets to an amount which the Company believes is more likely than not to be
realized.

     The Company has approximately $38.9 million of state net operating losses
expiring through 2013.

7. REGULATORY ISSUES AND OTHER RISK CONSIDERATIONS

     On September 30, 1998, a letter was received from the Division of Marketing
Practices of the Federal Trade Commission (the "FTC") initiating an inquiry into
whether the Company had engaged in any unlawful marketing practices. In response
to the letter, documents were supplied to the Division by the Company and the
Company's regulatory counsel has held informational meetings with Staff of the
FTC. The Company's regulatory counsel has been notified by the Staff of the FTC
that the investigation has been terminated and no action would be instituted
against the Company.

     In the fiscal year ended November 30, 1999, the Company's regulatory
counsel has responded to inquiries or subpoenas from attorneys general of
Vermont, Pennsylvania and Kansas concerning the Company's marketing practices
associated with its LEC based billing services. In the more than nineteen months
since the information was sent to Kansas, there has been no follow-up.
Similarly, information was sent to Pennsylvania more than sixteen months ago.
Also, in the latter part of the fiscal year ending November 30, 1999,
Pennsylvania requested additional information, but there has been no other
action by that office. The information was furnished to Vermont in February
2000, and the Company has continued to discuss Vermont's request for additional
data.

     The Company recently has been asked to enter into a voluntary cease and
desist agreement with the Montgomery County (Maryland) Department of Housing and
Consumer Affairs. The genesis of this request

                                       F-14
<PAGE>   53
                         TRAFFIX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

was certain consumer complaints about 900 services and club products dating from
1997 and 1998 that were addressed at that time. In early 1999, that office
requested additional information from the Company, but when the Company asked to
discuss the request, the county office did not respond and was not in contact
until early 2000, when it presented the cease and desist agreement. The Company
has advised the county office that it has not engaged in 900 or other psychic
services since May 1998, and has asked the county office to reconsider its
request that the Company enter into any agreement.

     To date, the Company has not been subject to any enforcement actions by any
regulatory authority.

8. NEW LAUDERDALE AND THE CESSATION OF 900 PAY-PER-CALL BUSINESS

     In December 1994, the Company entered into an agreement with ARS, an
unrelated entity at that time, to establish a joint venture known as New
Lauderdale, L.C. New Lauderdale operated "900" entertainment services. On
September 10, 1996, the Company acquired the remaining 50% interest in New
Lauderdale. The acquisition was accounted for using the purchase method of
accounting and, accordingly, the purchase price was allocated to the assets
purchased based upon the fair values at the date of acquisition. As a result,
approximately $23,159,000 of the purchase price was allocated to goodwill,
customer lists and other intangibles, which were being amortized on a
straight-line basis over a period from 1 to 15 years (See Note   10).

     In accordance with the Company's business strategy of separating itself
from the 900 Pay-Per-Call business which is reported as a component of LEC
Billed products and services (see Note 13), on June 4, 1999, the Company entered
into an agreement (the "ARS Agreement") with ARS, pursuant to which the Company
agreed to cease conducting, marketing, advertising or promoting certain "stand
alone" 900 Pay-Per-Call Psychic Services described in the ARS Agreement (the
"900 Psychic Services") directly or indirectly through any affiliate, until
January 17, 2001. In addition, the Company agreed to cease its media buying
operations which it conducted under the name "Quintel Media" and ARS agreed to
assume responsibility for the "Quintel Media" employees and for the lease of the
premises used by "Quintel Media" in Fort Lauderdale, Florida, and to acquire the
computer equipment and other furniture, fixtures and leasehold improvements used
by "Quintel Media" at such premises.

     In consideration for the Company's agreement to suspend the offering of the
900 Psychic Services (and for the other covenants made and obligations
undertaken by the Company under the ARS Agreement), ARS and any of its
affiliates offering 900 Pay-Per-Call Psychic Services agreed to pay to the
Company certain royalty fees for each billable minute generated by 900
Pay-Per-Call Psychic Services on ARS' (or any of its affiliates') 900 numbers
and on ARS' (or any of its affiliates') billings to membership clubs from and
after the consummation of the transactions contemplated by the ARS Agreement and
until January 17, 2001, all as more fully described in the ARS Agreement.

     The ARS Agreement was effective as of May 31, 1999. During the fiscal years
ended November 30, 2000 and 1999, the Company had recorded royalty revenue under
the terms of the ARS Agreement amounting to $ 3.4 million and $2.8 million,
respectively, all of which has been collected. Additionally, during the fiscal
year 1999, the Company has received $258,808 in consideration for the sale of
the media department assets discussed above.

     Amortization expense was $982,173 for the year ended November 30, 1998.
During fiscal 1998, the Company determined that the intangibles were impaired
(See Note 10).

                                       F-15
<PAGE>   54
                         TRAFFIX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. COMMITMENTS AND CONTINGENCIES

  Leases

     The Company is obligated under a non-cancelable real property operating
lease agreement that expires in fiscal 2006. Future minimum rents consist of the
following at November 30, 2000:

<TABLE>
<S>                                                           <C>
2001........................................................  $  282,500
2002........................................................     322,500
2003........................................................     322,500
2004........................................................     322,500
2005........................................................     322,500
Thereafter..................................................     215,000
                                                              ----------
                                                              $1,787,500
                                                              ==========
</TABLE>

     The lease contains escalation clauses with respect to real estate taxes and
related operating costs. The accompanying financial statements reflect rent
expense on a straight-line basis over the term of the lease as required by
accounting principles generally accepted in the United States of America. Rent
expense was $279,000, $312,000 and $522,422 for fiscal 2000, 1999 and 1998,
respectively.

  Employment Agreements

     The Company had executed employment agreements, which expired on November
30, 1998, with certain executive officers of the Company. In the event the
Company achieved certain pre-tax earnings targets, the Company may have granted
bonuses to such persons, subject to approval of the Compensation Committee of
the Board of Directors, in an aggregate amount not to exceed 5% of pre-tax
earnings for such year. No bonuses were granted during fiscal 1998. Each of the
individuals have agreed to continue to work as employees-at-will until a new
agreement is approved by the Board of Directors.

  Litigation

     On or about May 4, 1998, a complaint entitled "Joseph Chalverus, on behalf
of himself and all others similarly situated v. Quintel Entertainment, Inc.,
Jeffrey L. Schwartz and Daniel Harvey" was filed in the United States District
Court for the Southern District of New York; subsequently, a complaint entitled
"Richard M. Woodward, on behalf of himself and all others similarly situated v.
Quintel Entertainment, Inc., Jeffrey L. Schwartz and Daniel Harvey" was filed in
that same court, as was a complaint entitled "Dr. Michael Title, on behalf of
himself and all others similarly situated v. Jeffrey L. Schwartz, Jay Greenwald,
Claudia Newman Hirsch, Andrew Stollman, Mark Gutterman, Steven L. Feder, Michael
G. Miller, Daniel Harvey and Quintel Entertainment, Inc." (collectively, the
"Complaints"). In addition to the Company, the defendants named in the
Complaints are present and former officers and directors (the "Individual
Defendants"). The plaintiffs seek to bring the actions on behalf of a purported
class of all persons or entities who purchased shares of the Company's Common
Stock from July 15, 1997 through October 15, 1997 and who were damaged thereby,
with certain exclusions. The Complaints allege violations of Sections 10(b) and
20 of the Securities Exchange Act of 1934, and allege that the defendants made
misrepresentations and omissions concerning the Company's financial results,
operations and future prospects, in particular, relating to the Company's
reserves for customer chargebacks and its business relationship with AT&T. The
Complaints allege that the alleged misrepresentations and omissions caused the
Company's Common Stock to trade at inflated prices, thereby damaging plaintiffs
and the members of the purported class. The amount of damages sought by
plaintiffs and the purported class has not been specified.

     On September 18, 1998, the District Court ordered that the three actions be
consolidated, appointed a group of lead plaintiffs in the consolidated actions,
approved the lead plaintiffs selection of counsel for the
                                       F-16
<PAGE>   55
                         TRAFFIX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

purported class in the consolidated actions, and directed the lead plaintiffs to
file a consolidated complaint. The consolidated and amended class action
complaint ("Consolidated Complaint") which has been filed asserts the same legal
claims based on essentially the same factual allegations as did the Complaints.
On February 19, 1999, the Company and the Individual Defendants filed a motion
to dismiss the Consolidated Complaint. The District Court has denied the motion
to dismiss. The Company and the Individual Defendants have answered the
Consolidated Complaint, denying all liability and raising various affirmative
defenses. Discovery has commenced. The Company believes that the allegations in
the Complaints are without merit, and intends to vigorously defend the
consolidated actions. The Company maintains Directors and Officers liability
insurance, which the Company believes adequately covers damages, if any, that
may arise under the action. No assurance can be given, however, that the outcome
of the consolidated actions will not have a materially adverse impact upon the
results of operations and financial condition of the Company.

     Traffix is a party to various claims and lawsuits in the ordinary course of
business. Litigation in general involves primarily disputes arising from
contractual obligations and interpretations. Traffix believes that it has
defenses to its litigation and is vigorously contesting all matters. In the
opinion of management, final judgment from pending claims and litigation, if
any, against the Company would not have a material adverse effect on its
consolidated financial position, results of operations or cash flows.

10. SPECIAL CHARGES

     During 1998, the Company experienced increased chargebacks and marketing
expenditures relating to its "900" entertainment services. As a result, this
service was not providing positive operating results and cash flows and, as
such, the Company ceased marketing such services as an independent revenue
source. Accordingly, as required by Statement of Financial Accounting Standards
No. 121, the Company reviewed its long-lived assets, including goodwill, for
impairment. The Company determined that the "900" entertainment service could
not be disposed of nor was there a predictable estimate of any future cash flows
associated with any alternative use. The Company concluded that the intangibles,
primarily goodwill, arising from the acquisition of the remaining 50% interest
in New Lauderdale, L.C. were entirely impaired. As such, a noncash charge of
$18,514,435, representing the remaining balance of the intangibles, was recorded
in the second quarter of fiscal 1998.

     In addition, the Company recorded a noncash charge of approximately
$1,178,000 associated with the writedown of assets relating to the decision to
abort an Internet telephony program during the fourth quarter of fiscal 1998.

11. EARNINGS PER SHARE

     The following table sets forth the reconciliation of the weighted average
shares used for basic and diluted earnings per share:

<TABLE>
<CAPTION>
                                                        YEAR ENDED NOVEMBER 30,
                                                 --------------------------------------
                                                    2000          1999          1998
                                                 ----------    ----------    ----------
<S>                                              <C>           <C>           <C>
Denominator:
  Denominator for basic earnings per share --
     weighted average shares...................  14,792,734    15,119,610    17,034,531
Effect of dilutive securities:
  Stock options................................     701,929       122,052            --
                                                 ----------    ----------    ----------
  Denominator for diluted earnings per share --
     adjusted weighted average shares..........  15,494,663    15,241,662    17,034,531
                                                 ==========    ==========    ==========
</TABLE>

                                       F-17
<PAGE>   56
                         TRAFFIX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Options and warrants to purchase 515,896, 243,474 and 1,579,796 shares of
common stock that were outstanding at November 30, 2000, 1999 and 1998,
respectively, were not included in the computation of diluted earnings per share
because their effect would be anti-dilutive.

12. STOCK OPTION PLAN AND WARRANTS

     During fiscal 1995, the Company implemented the 1995 Stock Option Plan (the
"Stock Option Plan") effective as of October 1995. The Stock Option Plan
provides for the grant of options to purchase up to 750,000 shares of the
Company's common stock either as incentive stock options ("Incentive Stock
Options") within the meaning of Section 422 of the United States Internal
Revenue Code or as options that are not intended to meet the requirements of
such section ("Nonstatutory Stock Options"). Options to purchase shares may be
granted under the Stock Option Plan to persons who, in the case of Incentive
Stock Options, are employees (including officers) of the Company, or, in the
case of Nonstatutory Stock Options, are employees (including officers),
consultants or nonemployee directors of the Company. The Stock Option Plan was
amended in September 1996, June 1997, September 1999 and September 2000 to
provide for the granting of options to purchase an additional 500,000, 600,000,
1,000,000 and 2,000,000 shares, respectively, of the Company's common stock.
After these amendments, there were a total of 4,850,000 grants made available to
purchase the CompanyIs common stock under the Stock Option Plans.

     The exercise price of options granted under the Stock Option Plan must be
at least equal to the fair market value of such shares on the date of grant, or,
in the case of Incentive Stock Options granted to a holder of 10% or more of the
Company's Common Stock, at least 110% of the fair market value of such shares on
the date of grant. The maximum exercise period for which Incentive Stock Options
may be granted is ten years from the date of grant (five years in the case of an
individual owning more than 10% of the Company's common stock).

     In addition, the Company's Stock Option Plan provides for certain automatic
grants of options to the Company's nonemployee directors in consideration for
their services performed as directors of the Company and for attendance at
meetings. It provides for a one-time automatic grant of an option to purchase
25,000 shares of common stock at market value to those directors who were
serving on the Board of Directors at the inception of the Stock Option Plan and
also to those persons who become nonemployee directors of the Company in the
future, upon their appointment or election as directors of the Company. In
addition, the amended Stock Option Plan provides for quarterly grants to each
nonemployee director of the Company of options to purchase 6,250 shares of the
Company's common stock at the market value on the date of each grant. The
Company granted 81,250, 150,000 and 143,750 options to the nonemployee directors
during fiscal 2000, 1999 and 1998, respectively.

     The Committee offered all option holders the right to have their options
repriced at $1.75 effective September 10, 1998. Total options available and
elected for repricing were 1,415,078 and 878,078, respectively. Total options
surrendered as a result of the repricing amounted to 587,949. The repricing of
the options was in compliance with the provisions of the Stock Option Plan.

                                       F-18
<PAGE>   57
                         TRAFFIX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     A summary of the Company's stock options is as follows:

<TABLE>
<CAPTION>
                                      2000                   1999                   1998
                              --------------------   --------------------   --------------------
                                          WEIGHTED               WEIGHTED               WEIGHTED
                                          AVERAGE                AVERAGE                AVERAGE
                                          EXERCISE               EXERCISE               EXERCISE
                               SHARES      PRICE      SHARES      PRICE      SHARES      PRICE
                              ---------   --------   ---------   --------   ---------   --------
<S>                           <C>         <C>        <C>         <C>        <C>         <C>
Options outstanding,
  beginning of year.........  1,301,864    $2.48     1,304,978    $2.52       938,691    $7.92
Granted.....................    560,250     6.11       153,489     1.58     1,129,374     2.34
Exercised...................   (211,526)    1.96       (89,844)    1.75            --       --
Cancelled or lapsed*........    (14,456)    1.75       (66,759)    2.13      (764,087)*   7.32
                              ---------              ---------              ---------
Options outstanding, end of
  year......................  1,636,132    $3.80     1,301,864    $2.48     1,304,978    $2.52
                              =========    =====     =========    =====     =========    =====
Options exercisable, end of
  year......................  1,521,633              1,006,387                666,563
                              =========              =========              =========
Options available for grant,
  end of year...............  2,741,300              1,279,794                373,307
                              =========              =========              =========
Weighted average fair value
  of options granted during
  the year..................      $4.60                  $1.08                  $1.17
                                  -----                  -----                  -----
                                  -----                  -----                  -----
</TABLE>

---------------
* Includes 587,949 shares surrendered in 1998 upon repricing.

     The Company adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized with regard
to options granted under the Plan in the accompanying financial statements. If
stock-based compensation costs had been recognized based on the estimated fair
values at the dates of grant for options awarded during the years ended November
30, 2000, 1999 and 1998, the Company's net income (loss) and earnings (loss) per
share would have been as follows:

<TABLE>
<CAPTION>
                                                  2000          1999           1998
                                               ----------    ----------    ------------
<S>                                            <C>           <C>           <C>
Net income (loss) -- as reported.............  $5,146,870    $3,923,860    $(16,952,618)
Net income (loss) -- pro forma...............  $3,653,723    $3,758,078    $(18,369,678)
Basic EPS -- as reported.....................  $     0.35    $     0.26    $      (1.00)
Diluted EPS -- as reported...................  $     0.33    $     0.26    $      (1.00)
Basic EPS -- pro forma.......................  $     0.25    $     0.25    $      (1.08)
Diluted EPS -- pro forma.....................  $     0.24    $     0.25    $      (1.08)
</TABLE>

     The weighted average fair value of each option has been estimated on the
date of grant using the Black-Scholes options pricing model with the following
weighted average assumptions used for all grants for volatility of 109.6% in
2000, 90% in 1999 and 65.4% in 1998; risk-free interest rate ranging from 5.87%
to 6.53% in 2000, 4.53% to 5.89% in 1999 and 4.67% to 4.80% in 1998; and
expected lives of approximately 4.8 years.

                                       F-19
<PAGE>   58
                         TRAFFIX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table summarizes information about stock options outstanding
at November 30, 2000:

<TABLE>
<CAPTION>
                                 WEIGHTED
                                  AVERAGE      WEIGHTED                    WEIGHTED
                                 REMAINING      AVERAGE                     AVERAGE
   RANGE OF                     CONTRACTUAL   EXERCISABLE     SHARES      EXERCISABLE
EXERCISE PRICE    OUTSTANDING      LIFE          PRICE      EXERCISABLE      PRICE
---------------   -----------   -----------   -----------   -----------   -----------
<S>               <C>           <C>           <C>           <C>           <C>
$ 0.91 - $ 0.91        6,250        3.3         $ 0.91           6,250      $ 0.91
$ 1.50 - $ 2.13      924,882        2.5           1.89         924,882        1.89
$ 2.63 - $ 3.81       37,500        7.8           3.04          37,500        3.04
$ 4.59 - $ 6.75      592,500        8.8           5.97         478,001        6.21
$ 9.00 - $11.31       62,500        7.5           9.96          62,500        9.96
$15.56 - $15.56       12,500       36.6          15.56          12,500       15.56
---------------    ---------       ----         ------       ---------      ------
$ 0.91 - $15.56    1,636,132        4.1         $ 2.49       1,521,633      $ 3.71
===============    =========       ====         ======       =========      ======
</TABLE>

     As of November 30, 2000 and 1999, there were 275,818 warrants outstanding
to purchase common stock at an exercise price of $8.25 per share. The warrants
are exercisable through December of 2000.

     During fiscal 2000 and 1999, options for shares of the Company's common
stock were exercised by certain employees and directors. A tax benefit of
$448,880 and $123,767 in fiscal 2000 and 1999, respectively, was recorded as an
increase to additional paid-in capital and a reduction to income taxes currently
payable. No options or warrants were exercised in fiscal 1998.

13. SEGMENT INFORMATION

     The Company's segments operate exclusively in the United States with an
immaterial portion of revenue earned in Canada during the fiscal years ended
November 30, 1999 and 1998. The accounting policies of the Company's segments
are the same as those detailed in Note 1.

     The Company's reportable operating segments are aligned into three
fundamental areas: (1) Internet Commerce billed directly to the Company's
marketing partners and corporate customers, as well as consumers (E-commerce),
(2) Off-line Customer Acquisition services billed directly to long distance
carriers, wireless carriers and other service providing businesses (Off-line
Customer Acquisition services) and (3) Products and Services billed to consumers
by Local Exchange Carriers (LEC Billed products and services). The balance of
the Company's operations, individually immaterial and in the aggregate are
included as part of Corporate and other. This business segment delineation is
consistent with the Company's management and financial reporting structure based
on products and services. The Company evaluates performance based on many
factors, with each segment's (a) gross profit and (b) net income excluding (i)
special charges, (ii) interest expense, (iii) interest and dividend income, (iv)
net gains (losses) on the sale of marketable securities, (v) long-lived asset
impairment charges, (vi) gains on non-monetary cost basis exchanges, (vii) other
non-operating income, (viii) minority interest income (loss), (ix) depreciation,
(x) amortization and (xi) income taxes (otherwise referred to as EBITDA) forming
the primary measurement criteria. The organization shares a common workforce and
office headquarters, which precludes an allocation of all overhead components.
Overhead items that are specifically identifiable to a particular segment are
applied to such segment and all other overhead costs are included in Corporate
and other. The following tables set forth the Company's financial results, by
management performance criteria, by operating segment. All revenues are from
non-intersegment sources; therefore no intersegment elimination applies.

                                       F-20
<PAGE>   59
                         TRAFFIX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Segment Data -- Net revenues

<TABLE>
<CAPTION>
                                                                     NET REVENUE
                                                               YEAR ENDED NOVEMBER 30,
                                                      -----------------------------------------
                                                         2000           1999           1998
                                                      -----------    -----------    -----------
<S>                                                   <C>            <C>            <C>
E-commerce..........................................  $ 9,980,283    $     7,634    $        --
Off-line Customer Acquisition services..............    8,958,774     30,687,009     30,364,096
LEC Billed products and services....................    7,134,831     11,975,622     64,002,365
Corporate and other.................................       20,072        169,575        323,790
                                                      -----------    -----------    -----------
          Consolidated totals.......................  $26,093,960    $42,839,840    $94,690,251
                                                      ===========    ===========    ===========
</TABLE>

  Segment Data -- Gross Profit (Loss)

<TABLE>
<CAPTION>
                                                                 GROSS PROFIT (LOSS)
                                                               YEAR ENDED NOVEMBER 30,
                                                      -----------------------------------------
                                                         2000           1999           1998
                                                      -----------    -----------    -----------
<S>                                                   <C>            <C>            <C>
E-commerce..........................................  $ 3,955,273    $     5,550    $        --
Off-line Customer Acquisition services..............    5,948,559      6,270,953     (2,415,511)
LEC Billed products and services....................    6,699,781      9,457,075     17,115,604
Corporate and other.................................       20,072        154,165        (46,957)
                                                      -----------    -----------    -----------
          Consolidated totals.......................  $16,623,685    $15,887,743    $14,653,136
                                                      ===========    ===========    ===========
</TABLE>

  Segment Data -- EBITDA

<TABLE>
<CAPTION>
                                                                       EBITDA
                                                               YEAR ENDED NOVEMBER 30,
                                                      -----------------------------------------
                                                         2000           1999           1998
                                                      -----------    -----------    -----------
<S>                                                   <C>            <C>            <C>
E-commerce..........................................  $(1,519,528)   $  (427,253)   $        --
Off-line Customer Acquisition services..............    4,911,084        339,046     (6,913,016)
LEC Billed products and services....................    5,848,243      8,197,531     12,108,335
Corporate and other.................................   (3,501,837)    (2,853,664)    (3,615,036)
                                                      -----------    -----------    -----------
          Consolidated totals.......................  $ 5,737,962    $ 5,255,660    $ 1,580,283
                                                      ===========    ===========    ===========
</TABLE>

  Segment Data -- Depreciation and Amortization

<TABLE>
<CAPTION>
                                                             DEPRECIATION AND AMORTIZATION
                                                                YEAR ENDED NOVEMBER 30,
                                                         --------------------------------------
                                                           2000           1999          1998
                                                         --------       --------     ----------
<S>                                                      <C>            <C>          <C>
E-commerce..........................................     $ 67,634       $     --     $1,033,949
Off-line Customer Acquisition services..............           --         65,530        101,236
LEC Billed products and services....................           --          9,171             --
Corporate and other.................................      196,035        174,372        148,854
                                                         --------       --------     ----------
          Consolidated totals.......................     $263,669       $249,073     $1,284,039
                                                         ========       ========     ==========
</TABLE>

                                       F-21
<PAGE>   60
                         TRAFFIX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Segment Data -- Special Charges

<TABLE>
<CAPTION>
                                                                     SPECIAL CHARGES
                                                                 YEAR ENDED NOVEMBER 30,
                                                           ------------------------------------
                                                            2000           1999        1998
                                                           ------         ------    -----------
<S>                                                        <C>            <C>       <C>
E-commerce..........................................       $   --         $   --    $        --
Off-line Customer Acquisition services..............           --             --             --
LEC Billed products and services....................           --             --     18,514,435
Corporate and other.................................           --             --      1,178,108
                                                           ------         ------    -----------
          Consolidated totals.......................       $   --         $   --    $19,692,543
                                                           ======         ======    ===========
</TABLE>

  Segment Data -- Long-Lived Assets

<TABLE>
<CAPTION>
                                                                   LONG-LIVED ASSETS
                                                                YEAR ENDED NOVEMBER 30,
                                                         --------------------------------------
                                                           2000           1999          1998
                                                         --------       --------     ----------
<S>                                                      <C>            <C>          <C>
E-commerce..........................................     $ 65,232       $324,283     $       --
Off-line Customer Acquisition services..............           --             --        574,821
LEC Billed products and services....................           --             --             --
Corporate and other.................................      447,726        492,250        569,080
                                                         --------       --------     ----------
          Consolidated totals.......................     $512,958       $816,533     $1,143,901
                                                         ========       ========     ==========
</TABLE>

  Segment Data -- Total Assets

<TABLE>
<CAPTION>
                                                                    TOTAL ASSETS
                                                               YEAR ENDED NOVEMBER 30,
                                                      -----------------------------------------
                                                         2000           1999           1998
                                                      -----------    -----------    -----------
<S>                                                   <C>            <C>            <C>
E-commerce..........................................  $ 4,536,473    $ 7,610,364    $        --
Off-line Customer Acquisition services..............    1,461,783      8,249,232     25,790,868
LEC Billed products and services....................    3,120,889      8,411,901     21,413,609
Corporate and other.................................   43,684,914     33,005,782     17,208,667
                                                      -----------    -----------    -----------
          Consolidated totals.......................  $52,804,059    $57,277,279    $64,413,144
                                                      ===========    ===========    ===========
</TABLE>

14. SUBSEQUENT EVENT

     On December 22, 2000, Jay Greenwald, the Company's President and Chief
Operating Officer, and the Company entered into a Letter Agreement, pursuant to
which Mr. Greenwald resigned as an executive officer and employee of the
Company. Mr. Greenwald will remain as a member of the Company's Board of
Directors. The Letter Agreement provides that (i) in recognition of Mr.
Greenwald's service to the Company, he shall receive a one-time severance
payment of $115,385; and (ii) Mr. Greenwald shall provide consulting services to
the Company through November 30, 2001, for no less than six days a month,
pursuant to which he will be paid $10,000 per month, all as to be more
specifically set forth in a final written consulting agreement to be negotiated
between the Company and Mr. Greenwald at a later date.

                                       F-22
<PAGE>   61
                         TRAFFIX, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

     The following is a summary of the unaudited quarterly results of operations
for fiscal 2000, 1999 and 1998:

<TABLE>
<CAPTION>
                                                      QUARTER ENDED
                               -----------------------------------------------------------
                               NOVEMBER 30,    AUGUST 31,       MAY 31,       FEBRUARY 29,
                               ------------    -----------    ------------    ------------
<S>                            <C>             <C>            <C>             <C>
2000:
Net revenues.................  $ 8,312,064     $ 7,862,386    $  7,220,864    $ 2,698,646
Gross profit.................    3,300,245       5,067,011       5,856,759      2,399,670
Income before income taxes...      853,284       2,616,751       3,210,748      1,937,841
Net income...................      516,705       1,561,600       1,906,859      1,161,706
Basic income per share.......  $      0.03     $      0.11    $       0.13    $      0.08
Diluted income per share.....  $      0.03     $      0.10    $       0.12    $      0.07
1999:
Net revenues.................  $ 4,526,274     $ 8,084,023    $ 10,423,942    $19,805,601
Gross profit.................    4,275,515       4,503,692       4,056,306      3,052,230
Income before income taxes...    2,393,277       2,390,715         926,273        672,115
Net income...................    1,669,073       1,298,190         555,289        401,308
Basic income per share.......  $      0.12     $      0.09    $       0.03    $      0.03
Diluted income per share.....  $      0.11     $      0.09    $       0.03    $      0.03
1998:
Net revenues.................  $20,285,085     $16,509,577    $ 21,259,988    $36,635,601
Gross (loss) profit..........   (1,624,266)      5,070,872       1,380,175     10,499,027
(Loss) income before income
  taxes......................   (5,068,084)      2,055,824     (20,505,128)     6,147,306
Net (loss) income............   (6,591,590)      1,460,902     (15,510,314)     3,688,384
Basic (loss) income per
  share......................  $     (0.41)    $      0.09    $      (0.91)   $      0.20
Diluted (loss) income per
  share......................  $     (0.41)    $      0.09    $      (0.91)   $      0.20
</TABLE>

     During the fourth quarter of fiscal 2000, the Company adjusted certain
accrued expenses related to fulfillment accruals ($1,007,237), and accrued
annual bonuses ($260,060), the combined effect of which increased fiscal 2000's
fourth quarter pre-tax income by $1,267,297.

     The fourth quarter of fiscal 2000 was negatively impacted by long-lived
asset impairment charges of $602,500.

     The combined effect of these fourth quarter, fiscal 2000, adjustments
increased pre-tax income by $664,797.

     During the fourth quarter of fiscal 1999, there were no material events.

     During the fourth quarter of fiscal 1998, the Company reduced the benefit
for income taxes by approximately $2,550,000 due to a change in estimate of the
amount of permanent differences, primarily goodwill due to its accelerated
write-off, and deferred tax asset valuation reserves.

                                       F-23
<PAGE>   62

         SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

<TABLE>
<CAPTION>
           COL. A                COL. B               COL. C                 COL. D           COL. E
           ------             ------------   ------------------------     -------------     -----------
                                                    ADDITIONS
                                             ------------------------
                                BALANCE      CHARGED TO   CHARGED TO                          BALANCE
                              AT BEGINNING   COSTS AND       OTHER        DEDUCTIONS --       AT END
        DESCRIPTION            OF PERIOD      EXPENSES     ACCOUNTS         DESCRIBE         OF PERIOD
        -----------           ------------   ----------   -----------     -------------     -----------
<S>                           <C>            <C>          <C>             <C>               <C>
YEAR ENDED NOVEMBER 30, 2000
Reserve for customer
  chargebacks...............  $ 4,618,108     $    --     $   988,669(1)   $ 4,381,737(7)   $ 1,225,040
                              -----------     -------     -----------      -----------      -----------
Reserve for fulfillment
  costs.....................  $ 4,132,809     $    --     $   518,335(2)   $ 3,904,729(8)   $   746,415
                              -----------     -------     -----------      -----------      -----------
Allowance for doubtful
  accounts..................  $        --     $    --     $ 2,551,352(5)   $ 1,756,328(6)   $   795,024
                              -----------     -------     -----------      -----------      -----------

YEAR ENDED NOVEMBER 30, 1999
Reserve for customer
  chargebacks...............  $15,494,138     $    --     $11,968,645(1)   $22,844,675(3)   $ 4,618,108
                              -----------     -------     -----------      -----------      -----------
Reserve for fulfillment
  costs.....................  $ 1,405,248     $    --     $ 7,133,012(2)   $ 4,405,451(4)   $ 4,132,809
                              -----------     -------     -----------      -----------      -----------

YEAR ENDED NOVEMBER 30, 1998
Reserve for customer
  chargebacks...............  $38,196,114     $    --     $56,496,612(1)   $79,198,588(3)   $15,494,138
                              -----------     -------     -----------      -----------      -----------
Reserve for fulfillment
  costs.....................  $        --     $    --     $ 1,405,248(2)   $        --      $ 1,405,248
                              -----------     -------     -----------      -----------      -----------
</TABLE>

---------------

<TABLE>
<S>  <C>                                             <C>          <C>
(1)  Charges against revenues.
(2)  Charges against cost of sales.
(3)  Chargebacks refunded to consumers.
(4)  Payments made to fulfillment vendors.
(5)  Charges to allowance
(6)  Charges against the allowance
(7)  Chargebacks refunded to consumers.............  $2,556,119
     Prior year chargebacks credited to income.....  $1,825,618   $4,381,737
                                                     -----------------------
(8)  Payments made to fulfillment vendors..........  $  991,169
     Prior year accrual reversals reducing costs...  $2,428,235
     Current year (4th qtr.) accrual reversals.....  $  485,325   $3,904,729
                                                     -----------------------
</TABLE>

                                       S-1
<PAGE>   63

<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER
---------
<S>         <C>
 3.1.1      Articles of Incorporation of the Company, as amended.(1)
 3.1.2      Amendment to the Articles of Incorporation of the
            Company.(2)
 3.2        Bylaws of the Company.(3)
10.1        Third Amended and Restated 1996 Stock Option Plan.(4)
10.2        Lease of the Company's offices at One Blue Hill Plaza, Pearl
            River, New York.(5)
10.3        Letter Agreement, dated as of December 22, 2000, by and
            between the Company and Jay Greenwald.(6)
10.4+       Billing and Collection Services Agreement between Federal
            Transtel, Inc. and the Company.(7)(P)
10.5.1      Agreement regarding 900 Pay-Per-Call Psychic Services
            between the Company and Access Resource Services, Inc.(7)
10.5.2      Amendment No. 1 to Exhibit 10.5.1.(7)
10.6.1      Amendment No. 1 to Non-Competition and Right of First
            Refusal Agreement between the Company and Steven L.
            Feder.(7)
10.6.2+     Amendment No. 1 to Non-Competition and Right of First
            Refusal Agreement between the Company and Peter Stolz.(7)
10.6.3+     Amendment No. 1 to Non-Competition and Right of First
            Refusal Agreement between the Company and Thomas H.
            Lindsey.(7)
10.7.1      Redemption Agreement among the Company, Steven L. Feder and
            Defer Limited Partnership.(7)
10.7.2+     Redemption Agreement among the Company, Peter Stolz and the
            P. Stolz Family Limited Partnership, L.P.(7)
10.7.3+     Redemption Agreement among the Company, Thomas H. Lindsey
            and Maslin Limited Partnership.(7)
10.8+       Indemnification Agreement among the Company, Access Resource
            Services, Inc., Steven L. Feder, Peter Stolz, Thomas H.
            Lindsey, Defer Limited Partnership, the P. Stolz Family
            Limited Partnership, L.P. and Maslin Limited Partnership.
            (7)
10.9        Security Agreement between the Company and Access Resource
            Services, Inc.(7)
10.10.1*+   February 1, 2001 Mutual Database License and Marketing
            Agreement between the Company and Naviant Marketing
            Solutions, Inc.
10.10.2*+   June 20, 2000 Database License Agreement between the Company
            and Naviant Marketing Solutions, Inc.
10.10.3*+   March 30, 2000 Database License Agreement between the
            Company and Naviant Marketing Solutions, Inc.
21*         Subsidiaries of the Company
27*         Financial Data Schedule
</TABLE>

---------------
 *  Filed herewith.

 +  Confidential treatment requested as to portions of this Exhibit.

 (1) Filed as an Exhibit to the Company's Registration Statement on Form 8-A
     dated October 23, 1995 and incorporated herein by reference.

 (2) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the
     fiscal quarter ended August 31, 1998 and incorporated herein by reference.
<PAGE>   64

 (3) Filed as an Exhibit to the Company's Registration Statement on Form S-1
     dated September 6, 1995 (File No. 33-96632) and incorporated herein by
     reference.

 (4) Filed as an Exhibit to the Company's Proxy Statement filed with the
     Commission, dated August 16, 2000 and incorporated herein by reference.

 (5) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
     fiscal year ended November 30, 1996 and incorporated herein by reference.

 (6) Filed as an Exhibit to the Company's Current Report on Form 8-K dated
     December 26, 2000 and incorporated herein by reference.

 (7) Filed as an Exhibit to the Company's Current Report on Form 8-K filed with
     the Commission on June 4, 1999 and incorporated herein by reference.

(P) Filed by paper with the Commission pursuant to a continuing hardship
    exemption.